Financial Dark Horse:
With all the chatter of a couple or more interest rate cuts this year, some banks are doing their best to overcome a tough situation. The XLF is just the third best major S&P sector YTD thus far, although it has advanced 14.9% in 2019. JPM has always been interpreted as best in breed, but C is looking to make a challenge for that prestige. Both of the aforementioned names are higher by 2% over the last one year period and sport similar dividend yield with C at 2.7 and JPM at 2.9%, but on a YTD basis C has advanced 30% compared to JPM’s 12%. The chart below shows a handle that was completed Friday on a good looking cup base.
Ten Year Anchor:
The 10 year treasury yield is down 22 of the last 31 weeks since hitting 3.24% in the fall of last year. It is on a current 5 week losing streak falling 19%. Of course this is weighing down the traditional banks, that looks for higher rates to capture as much margin on loans as they can. Below is the chart of the ten year treasury yield and its downtrend is firmly in place. While it may be a welcoming sign for consumers on their credit cards, or those looking for a mortgage, it is far from a sign of confidence from investors. Yields have been falling around the world with many developed nations sporting negative rates. That will attract capital to our “safe haven” status that will continue to push rates lower. Do not expect the downtrend to reverse anytime soon.
The financial administration group has been a solid performer with best of breed play EEFT and M&A activity recently with FDC and WAGE. Below is another name that has mentioned it is exploring a sale, EVRI and how it appeared in our 5/20 Financial Sector Review (keep in mind relying on a takeover should never be one motivation for entering a position). It has produced back to back positive earnings reactions of 2.6 and 11.5% on 5/8 and 3/13. Since the beginning of 2019 it has recored SEVEN weekly advances of 7% or more.