Can the Bank Stocks Continue Their Strength?

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U.S. equities finished mixed on Tuesday as investors looked ahead to the conclusion of the Federal Reserve’s two-day policy meeting on Wednesday expected to feature the start of “quantitative tightening” — the process by which its bloated $4.4 trillion balance sheet will be rolled back.

That, and President Donald Trump’s first address to the United Nations where he amped up the rhetoric against North Korea.

In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 gained 0.1%, the Nasdaq Composite gained 0.1% and the Russell 2000 lost 0.1%. Treasury bonds were mixed, the dollar weakened, gold was little changed and oil fell 0.9%.

Breadth was mixed and NYSE volume came in at 96.8% of the 30-day average. Telecom stocks led the way with a 2.3% gain thanks to a big 6.8% gain in Sprint Corporation (NYSE:S) on reports the company is in active merger talks with T-Mobile US Inc. (NASDAQ:TMUS), which gained 5.9%.

A deal is badly needed as the wireless telecoms are trapped in an intensifying price competition that’s set to weigh on revenues and profitability. Strum Ruger & Company Inc (NYSE:RGR) gained 13.7% on reports Trump is planning to relax rules on international sales of U.S. guns including assault rifles.

Rite Aid Corporation (NYSE:RAD) fell 12.1% after regulators approved a small-than-expected asset sale for 254 stores to Walgreens Boots Alliance (NASDAQ:WBA). Best Buy Co Inc (NYSE:BBY) fell 8% after announcing long-term goals ahead of its first analyst day in five years, with some concern about margins. And Tesla Inc (NASDAQ:TSLA) fell 2.6% after being initiated with an “underperform” rating at Jefferies on worries about whether its business model can be scaled up as well as the Street believes.

There were plenty of policy-related headlines. At the UN, Trump pointed the finger at states like Iran, Venezuela and North Korea and criticized the global community for countenancing rouge behavior. He warned Pyongyang that any strike on the United States would result in it being “totally destroyed.”

Separately, there are indications of possible looming legislative action on both tax and healthcare reform. On taxes, the Washington Post indicated a possible bipartisan plan is taking shape as the GOP relaxes its tax cut plans for the wealthy and a desire to dump the estate tax. Progress continues on healthcare as well, with GOP leaders focusing on a block-grant alternative that replaces Obamacare’s Medicaid expansion.

Conclusion


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Bank stocks have been in the driver’s seat in a big way in recent weeks as anticipation of quantitative tightening — as well as a general risk-on attitude — has weighed on bond prices and pushed up long-term yields. That has lifted net interest margin hopes and thus bank sector profitability expectations.

Of course, this misses the obvious: The Fed is about to finally start the process of reversing years of QE-based bond-buying stimulus that’s been responsible for the smooth and easy nature of the bull market since 2012.

And also: Higher interest rates, should they continue, will dampen overall economic growth by weighing on credit creation and consumer confidence.

Check out Serge Berger’s Trade of the Day for Sept. 20.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/dow-jones-notches-sixth-straight-record-high/.

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