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2019 is nearly here, and that means it is time to roll out my ten predictions for the new year. As I did last year, I will start with number 10 and work our way up to number 1 over the final month of 2018.  Enjoy!
Prediction #9 – Banks will be the worst performing sector of 2019
Banks stocks were supposed to the big winners of 2018 driven by higher interest rates and significant buybacks. But instead the banks stock as measured by the Invesco KBW Bank ETF (KBWB) are down 8% on the year, and nearly 16% off thier January highs.
The bad news is that outlook for 2019 is looking worse as the big banks face a flattening yield curve, slowing home sales, and slowing earnings growth. All of this comes as with the banks trading at some of their highest valuations in years using a price to tangible book value.
Yield Curve
The US 10-year yield is now below 3% at 2.95% as of December 4. Technical analysis suggests that yields have much further to fall, perhaps as low as 2.8%., and maybe as low as 2.6%.
That is causing the 10-year minus the 2-year yield curve to fall to just ten basis points and is getting close to inversion a big negative for the bank stocks.
Housing
Additionally, home sales are falling, and that is likely to hurt banks loan growth next year if that trend continues.
Valuation
Additionally, the big banks such as JPMorgan, Citigroup, and Bank of America are trading at some of their highest price to tangible book values in years, and revision to the mean would likely mean these stock still have further to fall.
JPM Price to Tangible Book Value data by YCharts
Earnings growth for these banks are expected to slow materially next year and the years to follow.
JPM EPS Estimates for Current Fiscal Year data by YCharts
Should loan growth slow and the yield curve continue to flatten it is likely to cause those earnings to fall. In all, it makes the banks stocks the groups that may struggle the most in 2019 and Prediction #9 for 2019.
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. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results
banks, jpmorgan, bank of america, citigroup
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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