It is hard to imagine Goldman Sachs as middling or even, dare we say it, an underdog. However, that is exactly the position the company is in, at least for the moment. Goldman’s rankings in the fixed income league tables leave it tied for third in an area it usually dominates. It has never been ranked lower than second in fixed income since 2007. Additionally, its shares have fallen this year while those of all other major banks have risen, leaving at a relatively weaker valuation than its rivals, such as Morgan Stanley.
FINSUM: We think that Goldman Sachs is a well-run organization and we expect their earnings will bounce back quickly which means now may be a good time to buy.
Bank stocks enjoyed a major run following President Trump’s election. Then they stalled in March and have been lagging the market since then. Now, they look ripe for a big fall, as they have dropped well below key support levels. Banks seem to be suffering from a number of issues, all related to rates. Treasuries have rallied, the Fed has stalled its hikes, and inflation is low, all a recipe for lower net interest margins at banks. A major part of the excitement that drove the rally in bank shares was hopes for a higher-rate, higher-inflation environment, but that vision for the future is receding quickly.
FINSUM: Given how much the rate outlook has changed from earlier this year, it would not be a surprise to see bank stocks come back down considerably. Their rise was always a bit overzealous, so a decline shouldn’t be unexpected.
Warren Buffett just minted a gigantic profit at Bank of America and in doing so became the company’s largest shareholder. In the depths of the 2011 market panic, he acquired the right to buy 700m shares at $7.14. BofA shares are currently trading at around $24. CEO Brian Moynihan has completely turned around the company from its Crisis-era woes, and it is now seen as one of the best ways to play a rising rate scenario.
FINSUM: Bank of America does seem a great deal healthier than it did in the post-Crisis years. Obviously Warren Buffett has confidence in it.
The big rally in bank shares driven by the Trump Rally may finally be dead. In a worrying sign for investors, new data shows that top bankers are selling their own company’s shares. So far this year, insiders at big banks have been selling, with sales of shares at the six largest US banks outnumbering purchases 14 to 1. The trend is unusual and a stark contrast to behavior from last year. Such insider selling or purchases are sometimes taken as powerful signaling mechanisms, such as Jamie Dimon’s purchases last year. Butt in 2017 there have been no such faith-inducing buys.
FINSUM: This is not a good sign, especially because insiders see how changing scenarios are impacting their own businesses. That said, all of 2017 is not exactly a great timeframe by which to judge the market right now. The last month would be much more elucidating.
So one of the things that was very hard to figure during the Trump Rally, especially in bank stocks, was to what degree banks may actually benefit from the deregulation that Trump’s administration was proposing. Well, that may now be starting to change as Bloomberg has just put out a comprehensive set of new estimates for how much each bank would benefit from various types of deregulation. JP Morgan and Morgan Stanley would be the biggest beneficiaries, seeing their pretax profits jump a whopping 22%. Goldman Sachs would see the smallest percentage increase, up 16%. The calculations are based on conversations with banks as well as their own disclosures.
FINSUM: These are pretty big gains. Frankly, they are larger than we would have anticipated. Now to the pesky part about actually enacting deregulation.