Some Analysts Warn on Bank Stocks After Rally -- WSJ
January 11 2017 - 3:03AM
Dow Jones News
By Chris Dieterich
Have bank stocks climbed too far, too fast?
Financial stocks have risen 17% since U.S. elections in
November, making them the top-performing sector in the S&P 500
in that span, by far. The group has been buoyed by expectations for
relaxed banking regulation under the new administration and greater
lending profitability as a result of higher interest rates.
Investors turned bullish literally overnight, pumping $7.5
billion into the Financial Select Sector SPDR exchange-traded fund,
ticker XLF, since Nov. 8 -- third-most among all ETFs, according to
FactSet.
Strong gains prompted one analyst to recommend booking profits
ahead of a wave of earnings announcements from the big banks
starting this week. Bank of America Corp., Wells Fargo & Co.
and J.P. Morgan Chase & Co. all are due to report results on
Friday.
Citigroup banking analyst Keith Horowitz in a note Tuesday told
clients to sell shares of Goldman Sachs Group Inc.; the Wall Street
firms is up 33% since Nov. 8.
Mr. Horowitz said the 23% climb for the KBW Nasdaq Banking index
since the election leaves little room for error for banks.
"The bull case we are hearing on the banks is that they are
broadly under-owned, they benefit from higher rates and better
economic growth, and they are less risky now due to higher capital
levels," he wrote. "While this is all true, we think this is mostly
reflected in the recent performance of the group."
Mr. Horowitz likewise cut his rating of Comerica, which has
climbed 34% since the election, for valuation reasons.
Shares of Goldman Sachs fell 0.1% on Tuesday while Comerica
added 0.1%.
Separately, Julian Emanuel, strategist at UBS, noted a worrisome
disconnect: While retail investors continue to pump money into bank
and financial stocks, hedge funds and other professional managers
already recently have been taking money out, according to the
firm's in-house flow data on clients' behavior.
"The sharp rally in financials since Donald Trump's election,
buoyed by higher interest rates and a steepening yield curve, may
be due for a tactical pause," Mr. Emanuel wrote. "Retail flow,
especially into ETF products, remains positive, further supporting
the idea that the sector could pull back, especially if earnings
don't surpass the 'high expectations bar' or if managements provide
a less optimistic outlook for 2017."
Mr. Emanuel recommends buying protective put options in the
Financial Select Sector SPDR ETF that expire next month. Buyers of
puts generally profit from declines in the shares of the underlying
asset.
(END) Dow Jones Newswires
January 11, 2017 02:48 ET (07:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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