It seems like every month or so we receive yet more evidence on why it pays to steer clear of the banking sector.
This time, Moody‘s (NYSE:MCO) downgraded 15 financial due to “significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”
Some of the banking world’s biggest players were downgraded by as much as two notches, including Barclays (NYSE:BCS), Bank of America (NYSE:BAC), JPMorgan(NYSE:JPM), Goldman Sachs Group (NYSE:GS) and Citigroup (NYSE:C).
In what looks like a moment of defiance, investors bid many of these stocks higher on Friday. In fact, Financials was the best performing sector heading into the weekend before crashing a little bit yesterday.
I would not recommend that you get caught up in this. I think this run up has more to say about the discontent with rating agencies than actual faith in the financial sector. These stocks just don’t have the fundamentals to back up the investors hype and it’s just going to cause these investors more pain in the long run.
Case in point, when you run these big banks through my free stock rating tool, all you see are shaky fundamentals and failing grades:
|BCS||Barclays PLC ADS||D||D||D|
|BAC||Bank of America Corp.||D||D||D|
|GS||Goldman Sachs Group Inc.||C||F||D|
|JPM||JPMorgan Chase & Co.||C||D||D|
So please stay away from the financial sector—as an ex-banking analyst I can tell you that these banks are still very troubled. Feel free to use my Portfolio Grader tool to get a sense of which companies are truly in growth mode and are deserving of your attention.