posted on 07 February 2016
by Michael Haltman
Often investors need to look for non-verbal clues concerning the actual direction the economy is heading in!
But, for those who watch or read business news sources, you will typically find that every selloff is presented as a buying opportunity that will be coupled with the phrase 'if you liked ____ stock at $___, you should love it now that it is 'on sale'.
On-the-other-hand, as any investor who was around during the bursting of the tech bubble in the early 2000's knows, there are times when buying on dips or averaging down in specific positions only leads to even greater losses! As examples see Cisco and Yahoo for stocks that analysts pounded the table on as they went down, and down, and down...you get the idea.
Of course over the long-term the stock market averages go up but, that said, investors need to be ready, willing and able to take some personal responsibility over the condition of their money.
Remember that analysts will sometimes have a vested interest either in talking the market up (i.e. sell-side firms) or in attempting to support the price of a stock by touting every sell-off as a buying opportunity (i.e. investment banking business).
LinkedIn As An Example
As an example consider the selloff in the stock of LinkedIn that occurred as a result of earnings back in May 2015 along with the corresponding response from the analyst community...
And then last week, due to a poor outlook going forward, LinkedIn traded down as low as $102!
Bank Stocks And Crude Oil Prices: Harbingers Of Things Yet To Come?
So when you consider that analysts can be as wrong as weatherman or economists while often face the same non-existent consequences for those errors, it points once again to the fact that investor involvement in their own financial decision-making is a critical piece of the money management process.
As we have watched the price of a barrel of crude oil crash to the low $30 range, it makes one wonder if a banking crisis similar to the one brought on by the mortgage crisis that pre-dated the financial crisis is even possible and, if it is, whether it might be lurking in the wings.
Many banks hold significant exposure to the energy sector and how that exposure is being handled, or not handled, may hold some clues to whether there may be a shoe to drop in the future.
Varied Bank Stock Price Performance
Interestingly while the S&P 500 (Symbol SPX used as a proxy) is down 11.5% over the past year, bank stocks have faired much worse. And some of those much worse than others...
Goldman Sachs (GS) -28.0% $218.40 High $156.45 2/5 Closing Price
Citicorp (C) -33.9% $60.34 High $39.85 2/5 Closing Price
Bank America (BAC) -29.9% $18.45 High $12.94 2/5 Closing Price
Wells Fargo (WFC) -18.2% $58.52 High $47.85 2/5 Closing Price
JP Morgan -17.6% $70.08 High $57.73 2/5 Closing Price
Providing another piece of the puzzle, courtesy of Zero Hedge, the energy sector exposure of some of the nations banks is presented below.
Is this exposure to the energy sector and underperformance of the banking sector when compared to the S&P 500 merely a function of financials being out of favor, or is it a case of where there's smoke there's fire?
Only time and the markets will tell us that for sure!
JPMorgan Chase & Co, No.1 U.S. bank by assets
Bank of America Corp, No.2 U.S. bank by assets
Wells Fargo & Co, No.3 U.S. bank by assets
Citigroup Inc, No.4 U.S. bank by assets
Morgan Stanley, No.6 U.S. bank by assets
Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at firstname.lastname@example.org
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