The Dow Jones Industrial Average continues to trade in an ultra-tight three-month trading range centered near 18,500. But there is plenty of action elsewhere, with stocks in areas like transportation, financials and big-tech perking up nicely.
Bank stocks are on the move thanks to fresh weakness in Treasury bonds, which is pushing up long-term interest rates and thus the net interest margins that factor directly into financial-sector profitability.
The move is being driven by a surge in inflation expectations, driven by strength in crude oil and falling odds of a September or December interest rate hike by the Federal Reserve (bolstering chances that inflation will rise above the Fed’s 2% target).
In response, a number of financial stocks look ready for upside extensions.
Here are three to watch.
Financial Stocks to Buy: Goldman Sachs (GS)
Click to Enlarge Goldman Sachs Group Inc (NYSE:GS) shares have perked up and over their April high to return to levels not seen since early January.
This ends a long nine-month consolidation that ended a 35%-plus decline from its summer 2015 high. A combination of economic growth concerns, energy sector worries, and slowdown in initial public offerings have all weighed on investment banks like GS. But wider net interest margins will do much to turn the profits situation around.
The company will next report results on Oct. 18 before the bell. Analysts are looking for earnings of $3.73 per share on revenues of $7.3 billion. Edge Pro subscribers are enjoying a near 80% gain in their Sept. $165 GS calls first recommended on Aug. 15.
Financial Stocks to Buy: Morgan Stanley (MS)
Click to Enlarge Morgan Stanley (NYSE:MS) shares are even more advanced than GS, pushing to late 2015 levels after a nice 50%-plus rebound off of its February low.
The company reported better-than-expected earnings on July 20 despite a 8.6% drop in revenues. Higher long-term interest rates will do much to boost top-line growth going forward.
The company will next report results on Oct. 19 before the bell. Analysts are looking for earnings of 62 cents per share on revenues of $8.1 billion.
Financial Stocks to Buy: American Express (AXP)
Click to Enlarge American Express Company (NYSE:AXP) shares look ready for a big upside breakout out of its post-April trading range, setting up a return to levels not seen since December.
This would put an end to a long downtrend that started in summer 2014, in which shares lost more than 45%, as the company was hit by weak growth metrics and the loss of its exclusive credit card arrangement with Costco Wholesale Corporation (NASDAQ:COST).
The company will next report results on Oct. 19 after the close. Analyst are looking for earnings of 96 cents per share on revenues of $7.7 billion.
Edge Pro subscribers are enjoying a near 10% gain in their Sept. $66 AXP calls recommended on Wednesday.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
