While U.S. equities remain within the confines of a four-month trading range, there has been a lot of action in the financial sector, as traders continue to react to the surprise Brexit vote two weeks ago.
European bank stocks in particular have been hit hard by fears over the consequences of a long withdrawal of the United Kingdom from the European Union. For example, just look at the recent redemption freeze at a number of U.K. property funds as foreign investors fear currency-driven losses.
Shares of Deutsche Bank AG (USA) (NYSE:DB) are plunging to new lows well below the 2008-09 financial crisis depths.
Focus is also on the Italian banks, as the government tries to negotiate a bailout agreement with Brussels, which is resistant to the idea. Today, Prime Minster Renzi is threatened to make the problem systemic by boasting that Italy’s non-performing loan issues pale in comparison to the serious vulnerabilities at other, larger, Eurozone banks.
With financials at the center of this new tumult, investors should keep an eye on these three big bank stocks. If recent declines accelerate, it’ll be an indication the stock market overall could be headed for another downturn.
Bank Stocks to Keep an Eye On: Banco Santander, S.A. (ADR) (SAN)
Spanish bank Banco Santander, S.A. (ADR) (NYSE:SAN) has dropped to test its lows near $3.60 from last February.
A breakdown here would also invalidate the 2012 support levels and put the 2009 financial crisis lows below $3.00 in play. SAN stock has been hit by Brexit concerns and fresh worries about the health of Spain’s public finances as the EU recently said the country was in violation of its fiscal limits.
The political landscape is shaky as well, with a recent election precipitating a divided government without a strong mandate.
Bank Stocks to Keep an Eye On: Bank of America Corp (BAC)
Bank of America Corp (NYSE:BAC) shares have fallen to retest its late June post-Brexit lows, as support from the early April reaction low falters.
A test of the February low would be worth a 15%+ drop from here. Shares have traded heavily despite a positive reaction to the results of the latest Federal Reserve “stress tests,” which cleared the way for additional capital return to shareholders via dividends and buybacks.
The company will report its next results on July 18 before the bell. Analysts are looking for earnings of 36 cents per share on revenues of $21 billion.
Bank Stocks to Keep an Eye On: KeyCorp (KEY)
Regional banks like KeyCorp (NYSE:KEY) are caught in the headwinds as well.
KEY shares are in a similar setup to BAC: It is clinging to its early April levels in an attempt to stay of off the February lows. While regional bank stocks like KEY may not have the global exposure of money-center banks like BAC, they are exposed to the Brexit fallout via falling long-term government bond yields as investors clamor for safe haven assets. This weighs on profitability via net interest margins.
The company will report results on July 26 before the bell. Analysts are looking for earnings of 28 cents per share on revenues of $1.1 billion.
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. As of this writing, he did not hold a position in any of the aforementioned securities.
