SPY Was the Biggest Winner Last Week
Last week, the SPDR S&P 500 ETF Trust (SPY) was the biggest winner with inflows worth $4.63 billion.
Overall trading revenues for the top ten global investment banks have fallen more than one-third since reaching its peak of $166 billion in 2009.
US financial stocks hold a lot of promise going into 2018 due to strong economic growth and the expected rise in interest rates.
Private non-farm payroll employment rose 190,000 in November following a gain of 235,000 in October.
Last week, the real stars were smart beta ETFs that saw strong inflows after many weeks. MTUM and USMV added $847.5 million and $829 million.
According to an analysis by FT, in the past nine months, the big six banks’ (JPM) (GS) trading assets rose by more than $170 billion.
Stronger economic growth, expectations of another rise in the interest rates, and lower regulatory barriers on the horizon are boosting financial stocks.
Banks with globally diversified portfolios are better placed to take advantage of the credit offtake in Europe and Asia.
Commercial banks (XLF) are seeing marginal improvements in net interest margins, which is driving a major portion of the growth in revenues.
Commercial bankers have benefited from rising interest rates, investment banking, and trading activity. Banks could see a 6%–12% rise in their stocks over the next 12 months.
The Conference Board Consumer Confidence Index for November came in at 129.5, up from 126.2 in October.
In 2018, US banks are expected to drive revenues on investment banking, asset management, the widening of net interest margins, and credit card loans.
US Banks have benefited from consistent rate hikes in 2016 and 2017, with higher net interest margins over their existing loan books.
As broader markets (SPY) (SPX-INDEX) have risen in recent quarters, valuations have risen as well.
Banks are expected to see the impact of rate hikes, tax rate cuts, investment banking, volatility in markets, and the overall performance of the economy.
Citigroup (C) is engaged in a significant number of repurchases in its effort to reduce its number of shares and improve its EPS (earning per share).
Wells Fargo is following strict underwriting guidelines in an effort to reduce its historical provisions. It’s expected to follow this strategy into 2018.
Wealth generation, higher equity valuations, higher operating cash flows have yielded strong deposits growth for US commercial banks for the past two years.
Commercial banks and asset managers have had a strong run since the beginning of 2016, given the rise in equities across the board.
The Trump administration is pushing for various financial, industrial, and economic reforms in an effort to provide a boost to domestic growth.