Sometimes a single earnings report is just that–a report from a single company that reflects what’s going on in that company’s business and that tells us relatively little about the economy as a whole. And then there are earnings reports that give us a snapshot of the larger economy from the point of view of a single company. In that case, savvy investors should be looking to extrapolate from that snapshot. Today, October 21, American Express (AXP) delivered this second kind of earnings report.
I don’t like the economic and financial environment looming ahead for banks. I see bad loans rising with a need to reserve more against bad loans. Slowing economies aren’t good for loan demand or credit card delinquencies either. So I’m taking advantage of this moment to sell Truist Financial out of this portfolio in spite of the stock’s hefty dividend. I’ve got a loss on this position of 4.07% since I added it to this portfolio on June 13, 2022. The stock is down 22.19% for 2022 to date as of the close on October 12.
Given the big role that stock buybacks play in sustaining rallies and driving stock prices higher, news in earnings reports this past week that both Citigroup (C) and JPMorgan Chase (JPM) are suspending their stock buyback programs is a big deal. Not just for these big banks or for the banking sector, but also for stocks as a whole. After a huge drop in buybacks in 2020 thanks to the Pandemic recession, buybacks for the companies in the Standard & Poor’s 500 roared back in 2021 to hit a new record of more than $850 billion. That easily broke the old record of $806 billion set in 2018. Buybacks support stock prices in two ways.
Shares of Citigroup climbed by 13.23% on Friday, July 15, after the company reported earnings of $2.19 a share. Revenue came in at $19.6 billion. Wall Street had projected earnings of $1.689 a share and revenue of $18.4 billion. So it’s not surprising that the stock rose strongly after the report. Or that the gains dragged other bank stocks higher too. For example, Bank of America (BAC), which reports on Monday, July 18, gained 7.04%. Wells Fargo (WFC) climbed 6.17%. To which I say, Thank you, and I’m selling.
My one-hundred-and-forty-third YouTube video “Quick Pick Truist Financial” went up today. My Quick Pick this week is Truist Financial Corp (TFC), a “super-regional” bank based in the Southeast. Bank stocks have been down recently on rising costs (got to pay more to keep your good people, these days), but Truist Financial, formed through a merger of BB&T and Sun Trust, is still taking out acquisition costs. My rule of thumb these days is to buy a dividend stock when the yield hits 4% or more. Thanks to the retreat in bank stocks Truist Financial now pays 4/02 plus with its share buyback plan the total yield hits 5.75%. I’ll be adding this Monday to my Dividend Income Portfolio on JubakPicks.com and JubakAM.com.
Back on April 11 when I sold Wells Fargo (WFC) and the Invesco KBW Bank ETF (KBWB) out of portfolios to reduce my exposure to a slowing economy caused by the Federal Reserve interest rate increases, I kept my position in U.S. Bancorp (USB) because I wanted to collect the dividend due to be paid out on April 15 (and because I thought super-regional U.S. Bancorp, as one of the best managed banks in the country, was less exposed to the downward trend in the sector.) Well, as of May 19, I’ve certainly collected my quarterly dividend (the stock current yields 3.75%) and the downward trend in financial stocks has picked up speed with the Fed announcing (well, as close to “announcing” as the Fed ever does) interest rate increases for the June, July and September meetings of the central bank, so I’ll be selling U.S. Bancorp out of my Jubak Picks Portfolio tomorrow May 20.
Special Report: “An Investor’s Guide to Selling Over the Next Four Months” with just one market “arc” left to post
I think these financial market curves will let you map out the longer stories of Federal Reserve interest rate increases and a potential recession–and then chart the shorter stories of war in the Ukraine, global oil and natural gas crunches, summer Pandemic relief, global food crisis, computer chip shortages (and whatever else you think might be important) under those longer curves. That will let you decide when to buy and sell (and what) in order to profit from short-term stories while preparing your portfolio for the longer arcs.
This morning big money center banks JPMorgan Chase (JPM) and Citigroup (C) delivered disappointing reports on fourth quarter revenue and earnings. Shares of JPMorgan Chase finished the day down 6.15%. Citigroup shares closed lower by 1.25%. But Wells Fargo (WFC) crushed earnings estimates for its fourth quarter. The stock gained 3.68% by the close.
Wells Fargo (WFC) is scheduled to report fourth quarter 2021 earnings on Friday, January 14. The bank is expected to be one of the few big money center banks to show a significant increase in earnings for the lat quarter of 2021 from the fourth quarter of 2020 (when numbers were elevated by a big recovery from the Pandemic bottom.) The Wall Street consensus projects fourth quarter earnings of $1.09 a share, up from 64 cents a share in the fourth quarter of 2020. (I’d note that the bank has delivered a positive earnings surprise above analyst projections in the last 4 quarters.) This is a good time to buy bank stocks.
Expect the the debate to go on. Are we seeing a top for this extraordinary rally? Are stocks headed to their first correction since dinosaurs walked the earth? (Actually stocks had their last 10% correction in February 2020 but almost nobody remembers because it didn’t last very long and soon stocks were on their way to infinity and beyond.) And will this correction be led by technology stocks, the stars of the last rally? Or is the huge and very quick drop in technology stocks and the smaller but still significant fall in a wider index such as the Standard and Poor’s 500 merely a rotation from one sector into another? For the record, as of the close on Friday, December 3, the S&P 500 was down 3.47% from its November 24 high. The NASDAQ Composite, with its heavier weighting in technology, was down 6.05% from its November 11 high.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My seventy-fourth YouTube video “Quick Pick Wells Fargo” went up today.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My seventy-third YouTube video “Trend of the Week: Bank Stocks” went up today.