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The Financials

The Financials

We have started into earnings season the first “Market Movers” to report have been the big banks. Goldman, Citigroup, Wells Fargo and JP Morgan all reported, and the results are all fine. What is interesting is thus far in 2019 they couldn’t be in a worse interest rate environment and all are coming out saying net interest margins will go lower, and that pain will impact them. But all their stock prices are holding in just fine. This chart is very interesting in that it shows the S&P financial index increasing by roughly 20% as the US 10 Year Treasury declines by almost 30%, the two normally trade in similar patterns.

And over a longer term, from the Trump election until now- when the yield broke out on Treasuries, the banks traded higher in lock step, but as yields declined this year, it shows the financials move back to towards their all time highs.  This is interesting in that generally they should go up and down together, and the correlations are less relevant.

Ultimately, what we think this is telling us is that even in a difficult operating environment for the financials, these stocks are provide good value and don’t seem to want to decline any further, if anything they look like they want to go higher with the market. We’re looking forward to the rest of earnings season.
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