Sell the Banks

Can earnings season sink financial stocks? July 14, 2014     Sell the Banks   Can earnings season sink financial stocks? This year's serial underperformers... Plus: How technology could beat the big banks   Greg Guenthner coming to you from Baltimore, MD... Greg Guenthner Earnings season is upon us. It's that magical time of year that gives investors those "I wish I sold yesterday" moments. Ugly earnings reports or poor guidance can sink shares, break trends, and quickly ruin your week. Of course, it's next-to impossible to predict with certainty how any given company's earnings report will look. And even if you do follow an analyst who gets the numbers right, you still don't know how investors will react until the morning bell rings. But you're not completely screwed. Fortunately, trends can tell us much more than grasping at earnings guesses. And right now, they're telling us to steer clear of the banks. The big financial firms are set to report earnings this week. Citigroup announced before the bell this morning (more on these results in just a second). JP Morgan reports Tuesday morning. Bank of America follows with its announcement Wednesday. Wells Fargo, often regarded as a best-of-breed bank stock, traded lower for five straight days last week (Wells released "meh" earnings Friday morning). This morning, J.P. Morgan downgraded Wells due to higher expenses and a further drop in net interest margin, according to MarketWatch. While Wells Fargo's chart is far from terrible, mediocre performance from the other big banks since late last year is beginning to stick out like a sore thumb... Citigroup shares are off nearly 10% this year. JP Morgan is down almost 3%. Bank of America is off by about 1%. They all trail the S&P 500, which is now up about 6.5% since January 1st. Yes, Citigroup shares are spiking early this morning after it announced earnings per share of $1.24, beating the$1.05 Wall Street estimate. Still Citi is the worst performer of the lot so far this year. It has a lot of catching up to do just to break even. Plus, there are plenty of reasons not to get too excited over the earnings and revenue beats, including the $7 billion mortgage backed securities fine the bank will soon fork over... And it's not just the big banks that are lagging the averages. Here's what I wrote on June 2nd: "Regional banks and the mega-cap financial stocks had traded hand-in-hand until about six weeks ago. Now, an ugly divergence is emerging. Concerns over how these smaller banks will perform in an environment where rates continue to drop are taking their toll. As of this morning, the SPDR KBW Regional Banking Index is off more than 5% year-to-date." For the record, the SPDR KBW Regional Banking Index has bounced back slightly over the past six weeks. It's down just 1.5% on the year as of Friday's close. But as I already showed you, even the big financial institutions aren't carrying investors to gains this year. Financials are, in fact, one of the worst performing sectors in the S&P year-to-date. There's simply no reason to bet on these stocks right now.         Your $2 Million Map Imagine I just slid you a map… And on this map were steps to take to bring you closer to wealth you've never imagined. This map was given to me by a Harvard-trained geologist and award-winning investment researcher. He says it's the reason why a 70-year-old retiree in Kansas named Clyde Wallace suddenly became $2 million richer. And it's the reason why you too could soon retire this year as a new millionaire. This is a must-see story. Click here for the full details.           Rude Numbers Targets, Predictions and Wild Guesses   200 points were added to the Nikkei today. The Japanese index closed at 15,395, good enough for a gain of more than 1.3%... $4 billion was just enough for Aecom Technology Corp. to buy out URS Corp., the companies announced yesterday. According to Aecom's management, the deal will form one of the largest companies in the engineering and construction industry... $100.75 buys a barrel of crude this morning. Oil prices continue to drop to start the new trading week. Light sweet crude is off by about 8 cents in early trading... $1,313 is where you'll find gold futures this morning. Traders are stomping on gold right now. It's down $23 since late last night... 1,970 marks the spot for S&P futures just before the bell. Stocks are set to open in the green this morning to begin the new trading week...     Rude Trends When to Buy... When to Sell   Technology is another big threat to the banking industry... "It's estimated that it costs banks $4.25 per transaction conducted in person at a physical branch. Every time you go to a bank to deposit a check, it costs the bank about this much," explains our microcap expert Thompson Clark. "Where do these costs come from? Salaries, rent and other fees." Of course, you could really chip away at these costs by taking away the banks' big infrastructure... "Contrast that to the cost for mobile banking. It's estimated that it costs banks 10 cents per transaction done on a mobile device. That's a 97.65% reduction in cost!" Thompson exclaims. "If you're a bank, would this be something you'd be interested in? And if you're a consumer, wouldn't you prefer to use your phone instead of going into the bank and filling out antiquated forms to do the simplest of tasks?" Fortunately, Thompson has found an idea that enables just this. Click here to learn how you can play it... [Ed. Note: Send your feedback here: rude@agorafinancial.com - and follow me on Twitter: @GregGuenthner]     Ignore At Your Own Peril Today's Must Read Links   Just one nine-digit code could speed up your retirement plans by 20 years! Don't Give the Government One Red Cent! [must see] How To Get In Before Stocks Go Public!     BE SURE TO ADD dr@dailyreckoning.com to your address book.       Additional Articles & Commentary: Join the conversation! Follow us on social media:         The Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Agora Financial delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from The Rude Awakening, click here. Please read our Privacy Statement. For any further comments or concerns please email us at rude@agorafinancial.com. 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