You can judge the stock market’s mood pretty accurately today, Tuesday, March 30, from just a few price movements. Take a look at the performance of bank stocks, the small cap Russell 2000, the CBOE VIX “fear index,” and technology stocks to see where we’re likely to be headed for the rest of this week.
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.
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.
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.
Bank earnings will start off fourth quarter earnings season. Friday, January 15, brings reports from JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) before the market open. The big test will be whether these banks can deliver news that’s good enough to keep the stocks rising after huge gains in the last three months.
I’m adding Citigroup, the most recent pick in my Dividend Stocks Special Report, to my Dividend Portfolio tomorrow
I started off with utility stocks and I’ve now moved on to other dividend stocks within the general argument that dividend stocks–if you pick the right one–are perfect for the post-vaccine economy and stock market rally.
