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Bank Stocks

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The financials will be the primary group in focus this week with earnings from the major banks coming on October 12 and 13. The Financial Sector ETF ($XLF) has risen by nearly 6.5 percent since September 1, beating the S&P 500 ($SPY) by nearly 3.5 percentage points. The recent rise in the banks seems tied to the outlook for one more Fed rate hike in 2017, and the paring of the Fed’s balance sheet.

JP Morgan, Citigroup, and Bank of America

Banks stocks like JP Morgan ($JPM), Bank of America ($BAC), and Citigroup ($C), are the big names bank with their stocks all rising since the start of September. Citigroup has performed the best over the past month up by nearly 10 percent, while shares of Bank of America is up by almost 9 percent, and JP Morgan is up by about 5.5 percent. Even troubled Wells Fargo ($WFC) has caught a bid rising by 9 percent.
banks, bank of america, jp morgan, citigroup, wells fargo

XLF data by YCharts

Bank Valuations

Using a valuation of price to tangible book value, Citigroup remains the cheapest in the group, trading at 1.12 times, while Wells and JPM continue to trade near two times. Citigroup has some multiple expansion since the start of September.
JPM Price to Tangible Book Value Chart

JPM Price to Tangible Book Value data by YCharts

Despite the recent rise in the stock prices, for the current quarter analyst have taken down their earnings estimates for shares of JP Morgan and Bank of America.
jp morgan, bank of america, citigroup

WFC EPS Estimates for Current Quarter data by YCharts

The Bond market has yet to see the same optimism as the financials stock year regarding the interest rate outlook, with the 10-year – 2 year Treasury spread yet to see material widening. Since banks generate a good portion of their earnings from the spread on interest rates, it should be interesting to see if how long they continue to diverge.

 

Other sectors worth watching

Continue to watch the Biotech’s and Technology sectors, the two groups have been the best performing groups of 2017, and the market is going nowhere without them participating.  Also, the consumer discretionaries ($XLY) are very close to breaking out, and if the recent wage data from BLS labor report is a start of higher wages, then this sector could be a be beneficiaries.

Have a Great Week

 

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Disclaimer: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.