A number of blue-chip stocks are sliding lower on Tuesday as the post-election “Trump-flation” trade is being reversed after President-elect Donald Trump — in an interview released over the holiday weekend — said the U.S. dollar was too strong.
Strength in the greenback was the lynchpin of the three-month rally Wall Street has enjoyed, powered by optimism over Trump’s fiscal stimulus plans and worries his “America first” policies would weigh on export dependent countries like China and Mexico. Thus, his willingness to talk down the dollar (a “verbal intervention” normally reversed for the mercantilists in Asian countries like Japan and South Korea) is resulting in painful trade unwinds as post-election dynamics are flipped on their heads:
Stocks down, bonds up, gold up and volatility up.
This is happening at the sector level, too. Blue-chip financial stocks — which have been the leaders of the post-election uptrend on deregulation and net interest margin hopes associated with the rise in long-term yields — are breaking down hard out of multi-month rallies. As the dollar weakens, a safe-haven bid is going into Treasury bonds, pushing down yields, and thus, the main reasons folks have been piling into these stocks.
Some disappointment in fourth-quarter earnings results isn’t helping as well. Here are five to sell:
Blue-Chip Stocks That Just Got Slammed by Trump: Bank of America (BAC)
Bank of America Corp (NYSE:BAC) shares were down more than 3% in trading on Monday to test the lows of a two-month trading range near $22.
Bank of America reported mixed results last Friday. On one hand, earnings beat by 2 cents per share; on the other, revenues came in soft thanks to its trading division.
BAC stock has more than doubled from its early 2016 lows and hasn’t suffered a significant pullback since June. However, could be materializing now should newfound strength in Treasury bonds continue to weigh on yields and thus, net interest margins.
The bank’s next report is slated for April 18 before the bell. Analysts are looking for earnings of 34 cents per share on revenues of $21.8 billion.
Blue-Chip Stocks That Just Got Slammed by Trump: JPMorgan (JPM)
JPMorgan Chase & Co. (NYSE:JPM) shares have collapsed down and out of an uptrend going back on June by cutting below its lower Bollinger Band. The drop puts the stock back to early December levels.
But more than that, Tuesday’s move marks a loss of momentum that will force many hot money traders out of the name as shares suffer a bout of relative weakness for the first time in seven months. The decline comes despite the reporting of better-than-expected quarterly earnings late last week despite the same soft investment banking revenues that plagued BofA.
JPM will next report results on April 13 before the bell. Analysts are looking for earnings of $1.56 per share on revenues of $24.6 billion.
Blue-Chip Stocks That Just Got Slammed by Trump: Wells Fargo (WFC)
Wells Fargo & Co (NYSE:WFC) enjoyed a relief rally following its scandal-driven woes last fall. But shares peaked in early December, and Tuesday’s action continued WFC’s multiweek drift lower.
Also weighing on Wells Fargo? The company reported a top- and bottom-line miss on Friday on a lack of revenue growth, and also announced that it would be closing some 400 branches over the next two years.
WFC now is at risk of dropping below its 50-day moving average for the first time since early November.
Wells Fargo will next report results on April 13 before the bell. Analysts are looking for earnings of 96 cents per share on revenues of $22.5 billion.
Blue-Chip Stocks That Just Got Slammed by Trump: Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) shares have reversed lower after initially trading higher on Tuesday on a top- and bottom-line quarterly beat.
Earnings came in at 81 cents per share (16 cents ahead of expectations) driven by strength in trading and institutional sales. Top-line growth clocked in at 17% over last year. CFO Jon Pruzan told CNBC that people are viewing the company as “half full” rather than “half empty.”
That optimism died out by Tuesday’s end, however. Besides, expectations were already quite elevated, with shares up more than 30% since early November.
Blue-Chip Stocks That Just Got Slammed by Trump: Goldman Sachs (GS)
Goldman Sachs Group Inc (NYSE:GS) shares are testing the lower end of a two-month trading range, dropping back below the $240-a-share threshold.
The company has been one of the leading issues in the Dow Jones Industrial Average since the election, posting a 70%-plus gain from its summertime lows.
Goldman, one of the last big banks to report, will release quarterly results on Tuesday before the bell. Analysts are looking for earnings of $4.80 per share on revenues of $7.8 billion.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
