Will Friday the 13th be lucky this year? Here are some reasons it might.
That’s when earnings season really gets going, led by major financials like Citigroup (C), JPMorgan Chase (JPM) and Wells Fargo (WFC).
And, unless you’ve been ignoring all the news, you probably know that traders are really looking forward to this earnings season. They’re praying it will end the volatility and shift attention back to fundamentals and the strong economy. Good news will be good again, they hope, while tariffs, presidential tweets and social-media data leaks will fade from view…. at least that’s the one narrative recently.
Maybe there’s something to it this time around — especially because banks and financials lead the parade. This sector, after all, actually stands to benefit from all those wild swings in the market last month. Remember how for the last year banks complained about weak trading revenues? Most of the evidence so far, including activity here at TradeStation, suggests that wasn’t a problem in the first quarter. Other big names like Bank of America (BAC) Goldman Sachs (GS) and US Bancorp (USB) follow with their results the week of April 16.
Secondly, one of investors’ top gripes about the market is that valuations are “too high.” That might be true for technology, industrials and consumer stocks. Banks, on the other hand, remain well below some of their valuation metrics over the longer term. Their price-to-book ratios are roughly half the levels of a decade ago, while their risk metrics are much lower. That means they’re like a car running in second gear, with the potential to rev up their earnings power.
Next, look at the chart on the SPDR S&P Bank ETF (KBE). It’s holding the same low around $47 where it traded after breaking out in January and then bounced in February. Is it likely to break to new lows right now, when so many companies in the industry are poised to announce results? Will investors dump them before the news? Odds may not favor that.
Finally, we have the calendar… because before earnings we have the Labor Department’s key monthly jobs report. Last month it was a blowout. Another strong number would likely drive up bond yields, which has generally been positive for banks.
Bottom line: This isn’t a trade recommendation, but when you look at all the factors in the market, conditions may now be stacking up in favor of the banks.