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Analysts have been pulling back their estimates for financials for the fourth-quarter earnings season, with expectation that other cyclical stocks, such as industrials, could be the new leadership on the Standard & Poors 500. (Read More: Where Is Top-Line Growth for 2013?)
With a good-but-not-great earnings season mostly in the books for the biggest U.S. banks, the financial sectors run as market leadership may be approaching its end.
The earnings outlook overall remains muted, with analysts continuing to issue negative revisions. Outlook changes for financials have been trending negative, led by banks and insurers, while the picture has been improving for industrials.
Analysts have been pulling back their expectations for financials for the fourth-quarter earnings season, with expectation that other cyclical stocks, such as industrials, could be the new leadership on the Standard & Poors 500.
Four institutions, including Bank of America and Morgan Stanley, have had the amount of shares surpass growth in assets. (Read More: Stock Rally Still Has Legs: Morgan Stanley CEO)
CNBCs Bob Pisani reacts to Jeff Coxs piece on rotating out of bank stocks to industrials.
KBW analyst Fred Cannon pointed out that decreasing the amount of shares available on the market will be critical to bank stock performance. (Read More: Street Stumbles in Stocks, Backs Away From Bonds)
Float, as it is called, indicates the numbers of shares available. A decrease in float is considered a positive sign for a stock based on supply-demand rules.
Spreads in credit deult swaps - essentially insurance policies against deult - have been approaching lows not seen during the stock markets bull run higher. As a contrarian indicator, that could be setting up as a headwind for financials.
As global PMIs move upwards, cyclical equity performance has generally followed, he said.
Of those banks under Federal Reserve stress test jurisdiction, just five have decreased their shares available. Those banks include Goldman Sachs and Bank of New York Mellon.
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Share repurchases are a critical feature of capital management for most of these large institutions as their capital levels are strong and asset growth is weak, Cannon said in a note. However, achieving net share reduction is difficult for many because of Fed restriction and because they are issuing significant numbers of shares as part of compensation.
To be sure, 2013-1-22 上午 1:06:34 financial stocks have performed well so r in the young 2013 stock market after roaring 28 percent higher and leading a 13 percent market gain. Theyve returned 4.4 percent and are the fourth best of the 10 S&P 500 sectors.
But a consensus is growing that with regulatory pressures coming to bear and earnings outlooks dimming, a sector rotation may be under way, sending financials to back in the pack.
Outside of Citigroup, most of the big financial institutions were able to beat modest profit expectations, and their shares have benefited.
Bank stocks more broadly have been less impressive.
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Another metric analysts sometimes examine for direction in banking stocks is risk of deult.
The driver for financials is simply the sluggish trading environment and thus does not point to macro weakness nor a deceleration in the economy, Thomas J. Lee, chief equity strategist at JPMorgan, said in his weekly market analysis.
The KBW Bank Index has been mostly flat since the banks began reporting,tumour4073.typepad.com. with concerns mounting that companies will have to get more innovative to drive market performance.
Looking forward, capital management will be critical in a slow-growth, highly regulated, banking world, in our view, and the most successful banks will need to be reducing shares outstanding to achieve strong EPS growth, Cannon said.
ImprovFinancial Stocks Nice Knowing You Time to Move On financial market news,ements in global purchase mangers index readings signal to Lee that industrials and technology stocks could be ready Financial Stocks Nice Knowing You Time to Move On financial market newsfor a breakout.
If deult risk begins to creep up again, a big double top could be in store for financial stocks, which would be a negative technical formation,aduedu2161.typepad.com. said Paul Hickey at Bespoke Investment Group. Either way, the next couple of days/weeks will be key for the direction of financial stocks over the next few months.
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