Another Financial Jumps as Earnings Improve

Another Financial Jumps as Earnings Improve

A forgotten financial stock exploded higher yesterday, the latest positive surprise in the sector.

Synchrony Financial (SYF) surged 11 percent to its highest level in almost three months. It was the sharpest rally in the history of the stock and the biggest gain for any member of the S&P 500 during the session.

SYF provides third-party credit cards to retailers like Wal-Mart Stores (WMT) and (AMZN). Once part of General Electric’s (GE) dismantled financial division, it’s drifted sideways since becoming an independent stock in mid-2014.

Until yesterday, that is, when the company unleashed positive news on almost every front. Not only did earnings and revenue beat estimates. (That put it in a similar boat with other major lenders.)

Synchrony Financial (SYF) with 50-day moving average and daily changes.

Perhaps more important, management reached some key agreements involving WMT. It extended a partnership with the retailer’s warehouse giant Sam’s Club, got a lawsuit dismissed and sold a portfolio of loans.

SYF also managed to cut its fee-sharing rebates with merchants, known as retailer share arrangements (RSAs). That’s a direct boost to profit.

Analysts celebrated the developments, saying they lifted clouds of uncertainty from a name that trades at a discount to peers. Now the Street is looking for more positive catalysts as SYF grows a financing partnership with PayPal (PYPL).

The rally comes at a strong time for major financials including Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS). Regional banks Comerica (CMA) and SunTrust (STI) have also ripped. Despite some vocal worries about the economy, key metrics for the industry are still strong.

For example, jobless claims reveal strong employment and the Federal Reserve’s senior loan officer survey little signs of business slowing.

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But, financials are the best-performing sector this year, and the good news keeps coming.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.