Things went from bad to worse for bank stocks this week despite a historic stimulus intervention by the Federal Reserve on Sunday night. Stocks opened limit down on Monday after futures fell apart amid ongoing worries about the impact COVID-19 will have on the economy and thus financial markets.
The Dow Jones Industrial Average may be in the green so far today, but leading up to that it was making a headlong dive towards the 20,000 level, with bank stocks among the hardest hit.
Not only are Wall Street banks vulnerable to the Fed’s cutting of interest rates — thus impacting net interest margins — but they are at risk from a number of related headwinds including corporate debt downgrades, market volatility, and tight repo market conditions.
Here are four to sell now:
Bank of America (BAC)
Though it bounced back today, Bank of America (NYSE:BAC) shares fell by nearly 18% yesterday, marking a decline of more than 40% from their recent high to return to levels not seen since late 2016. The company was in the headlines recently after a branch on Park Avenue in New York City ran out of $100 bills as wealthy customers made large withdrawals.
The company, like many other large banks, reported solid results back in January (which feels like a generation ago). Earnings of 74 cents beat estimates by five cents on $22.3 billion in revenues. Watch for the net charge off rate to increase going forward from just 0.39% as loans go sour in this difficult economic environment.
JPMorgan Chase (JPM)
JPMorgan Chase (NYSE:JPM) shares are down nearly 11.5% over the past five days, returning to mid-2017 levels, as prices fall further away from their 200-day moving average. The decline violates the late 2018 low and puts and end to a three-year trading pattern.
Not only are investors dealing with a bevy of macroeconomic problems, but CEO Jamie Dimon is offline and recovering from emergency heart surgery earlier this month.
Dimon has been a very vocal and visible representative of Wall Street in Washington and elsewhere in recent years. His absence isn’t helping confidence. He could also help explain to policymakers why various interbank lending markets remain broken — threatening liquidity in the foundational plumbing of the financial system.
Wells Fargo (WFC)
Wells Fargo (NYSE:WFC) shares are down almost 49% year-to-date, returning to lows not seen since late 2012. The company is among the more vulnerable large banks given recent troubles around sales force tactics and what is generally seen as a weaker portfolio of loans. The company even had a reported case of coronavirus in one of its offices in San Francisco.
The meltdown comes after a series of analyst upgrades from Atlantic Equities and CFRA in recent weeks, as well as bullish comments from no less than Warren Buffett on CNBC that bank stocks were “very attractive” relative to other securities he sees.
When the company last reported results in the middle of January, management admitted that expenses were too high, revenue growth too low, and that margins were likely to continue to decline in 2020.
Goldman Sachs (GS)
Shares of Goldman Sachs (NYSE:GS) are down 33% year-to-date. Watch for a possible decline to the lows last seen in 2016 near $130, which would be worth a loss of roughly 20% from here.
The company last reported on Jan. 14 with earnings of $4.69 per share on a 23.2% rise in revenues. The bank was in the news yesterday for warning clients that stocks could plunge another 20%, after recently falling into a bear market as the coronavirus causes “unprecedented financial and societal disruption.”
As of this writing, William Roth did not hold a position in any of the aforementioned securities.