Today, Monday June 14, JPMorgan Chase (JPM) CEO Jamie Dimon said that the bank is holding around $500 billion in cash in order to benefit from higher interest rates. Dimon told a Morgan Stanley virtual conference that he expects rising inflation will result in higher interest rates over the next 9 months.
U.S. banks that pass their next stress tests will be allowed to raise their dividends after June 30, the Federal Reserve said today, March 25. The Fed will also lift any remaining restrictions on stock buybacks.
Bank stocks were just about the only thing in the green today–which is why I’m adding U.S. Bancorp to Jubak Picks on Friday (plus some thoughts on bank stock option plays)
I’d like to add more exposure to the bank sector. But what? At this stage in the bank stock rally, I’m looking for well-run banks that will be able to take advantage of the increase in the yield spread to add to earnings. (As opposed to earlier in the cycle, when I added Citigroup because things were getting a lot better even for not-so-well run banks.) Bank of America (BAC) is one possibility. But the stock is up 25.80% for 2021 as of March 18 and up 32.26% in the last month. I think, instead, that I’ll go with U.S. Bancorp (USB), the country’s largest regional bank. U.S. Bancorp is up 16.96% for 2021 to date and up “only” 21.27% in the last month. It also comes with a 3.8% dividend (well above the 1.90% paid by Bank of America) that will give investors some downside protection. I’m adding that stock to my Jubak Picks Portfolio on Friday.
Check back here later tonight. Or wait until tomorrow
On second thought, financial markets decide they really didn’t like yesterday’s news from the Federal Reserve
After not moving very much yesterday on the actual news from the Federal Reserve-the Standard & Poor’s 500 finished up 0.29% and the NASDSQ Composite closed higher by 0.40%, today, March 18, markets decided they really didn’t like the Fed’s stance on inflation, interest rates, and bond yields.
A day after Fed chair Jerome Powell said the Fed wasn’t much concerned about either the projects for higher inflation or the rise in Treasury yields, the yield on the 10-year Treasury spiked to 1.71% at the close. (It was at 1.74% as 1 p.m. in New York.) The closing yield amounted to a jump of 7 basis points in the yield on the benchmark Treasury issue. The yield on the 10-year Treasury is now up an astonishing 42 basis points in a month. And as has been the case in 2021 and as you might expect, stocks sold off with high multiple, high momentum technology shares taking the worst beating.
I left my keyboard at 11:30 this morning to go for a walk in my neighborhood. The temperature was near 60 degrees in New York City. The sun was out. Restaurants with outdoor space were full. Columbia and Barnard students were out in skirts and even a few tank tops. There seemed to be more folks on the street than in recent days. I returned to work with spirits high. Ready to buy a stock or two. (I added some Disney (DIS) call options for June 18 at a strike of $200.) Confident that the worst of the pandemic was behind us. (Whether that’s true or not is a matter for a colder and rainier day.) Ready to believe that the economy and life were on the road back to normal. Don’t discount the role of “animal spirits,” the optimism that comes with warmer weather, a return to the outdoors, and an end to some (or in some states all) pandemic restrictions in moving stocks.
Just so we’re all on the same page: My buy of CPER and KBWB hedges posted yesterday and an add of the KBWB hedge to the Jubak Picks Portolio today
Yesterday in my YouTube video and in my latest addition to my Special Report: “Profit and Protect” I added the U.S. Copper Fund ETF (CPER) and the Invesco KBW Bank ETF (KBWB) to my Perfect Five ETF Portfolio. In that portfolio they will replace the SPDR Gold Trust ETF (GLD) and the Vanguard Intermediate Term Treasury Bond ETF (VGIT), respectively. The two new ETFs will keep the portfolio weighting of the out-going ETFs at 25% and 20%, respectively. You can find more about the logic of these hedges and about the specifics of these ETFs in my video and in my Special Report update. Tomorrow I’ll also be adding the Invesco KBW Bank ETF to my Jubak Picks Portfolio.
Special Reports: Profit and Protect–What you need to know about stock market stages for 2021–my first two hedges (copper and banks) for Stage #2
Hedges that can pay off on the downside and the upside are the most useful and most valuable. They also tend to be relatively rare. There aren’t a lot of these bets floating around in most markets just waiting for you to snap them up. However, I have found two hedges of just this sort in today’s market that I’m going to recommend to you today. (In this post I’m going to give you some of the nitty gritty numbers that support my recommendation for these two hedges. If you want to see some charts for copper and gold, banks and bonds check out the video I posted today.) I’m going to add these new recommendations to my standing Special Reports post tomorrow.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. The thirteenth YouTube video “2 Hedges for All Your Market Worries” went up today.
Yield on 10-year Treasury climbs to 1.16%–time to rethink some bond market assumptions and to start some selling
A year ago, the yield on the 10-year Treasury note stood at 1.59%. From that point yields fell, leading to big gains for Treasuries and other bonds. Yields were down to 0.73% as of the week of April 15, 2020. And then hit their low for 2020 during the week of August 2 at 0.55%. Since then the story for long Treasuries has been just the reverse. By October 4, the yields on 10-year Treasuries were back ump to 0.78%. 0.83% by November 1. 0.93% on December 6. And then 1.16% today February 9. The forecast right now is that yields for long Treasuries aren’t done climbing either.
Trick or trend: We’re seeing a near record earnings performance and an almost record increase in earnings estimates
Wall Street analysts have increased their 2021 forecast for S&P 500 earnings by 3.6% to $170.3 a share in January. That’s the biggest jump in earnings estimates in January for any year dating back to 2013 except the revisions in 2018 on the heels of the December 2017 tax cuts. Of course, a good part of this higher estimate is already figured into stock prices.
Trick or trend: GameStop increases the odds that Congress will tighten regulation on financial sector, and especially FinTech companies
Even before the GameStop (GME)/Robinhood explosion of last week, Democrats in Congress and the White House were targeting the financial sector for investigations, for tighter enforcement of existing regulation that had been relaxed during the Trump administration, and for new regulations that would address the non-bank sector.
The events of last week when Robinhood and other brokerage services halted trading in shares of GameStop, AMC (AMC) and other heavily shorted stocks that had turned into stock market rockets have just added more energy to those efforts. There’s almost certainly enough energy to go around in the committees now controlled by Democrats to push increased regulation of traditional banks and new non-bank financial institutions. But I expect that the trading halt at Robinhood, etc. will put added attention on FinTech companies.
What might Congress look at?