Financial Select Sector SPDR® ETF

Overall, tech stocks turned out to be the top performers for 2019. The gain in the technology sector helped the S&P 500 gain 29% in 2019.

Credit is the most important part of the economy, leading to increased spending, increased income levels, higher GDP, and faster productivity growth.

This week, the Dow Jones Industrial Average Index (DJI) rose 1%. On a month-to-date basis, it has risen 3.8% and heading for the biggest gain since June.

Dimensional Fund Advisors’ top buys are Apple (AAPL), AT&T (T), Microsoft (MSFT), L3Harris Technologies (LHX), and Verizon Communications (VZ).

On November 8, the Dow Jones closed at the 27,681.24 level, just 0.3% below its all-time high. US-China trade deal optimism raised equity markets.

All banks face risks. Two key areas to understand are banks’ market risk and reputational risk. Here’s a summary of each type.

The top risks that every bank faces are credit risk and liquidity risk. We’ll look at the banks that managed this risk safely, and those that didn’t.

Banks experience operational risk in all daily bank activities, such as a check incorrectly cleared or a wrong order punched into a trading terminal.

On August 27, Jim Cramer predicted that the equity market could witness a rebound in September. President Trump said that the US economy is in great shape.

On Wednesday, Alan Greenspan told CNBC, “Overall, the economy seems to be sagging.” According to President Trump, the economy is in great shape.

Bill Ackman, CEO of Pershing Square Capital Management, is well known in the hedge fund industry for his various investment strategies.

BAML’s David Hauner said that 2020 will be a very difficult year for investors. The last recession came after two years of yield curve inversion.

In August, cyclical sectors such as energy, financials, and industrials have fallen the most amid recession fears in the market.

According to President Trump, the US economy is “poised for big growth after trade deals are completed.” Markets are volatile amid the trade war.

The yield curve inverted yesterday, driving markets down. The DJIA fell 800 points yesterday—its worst performance in 2019—on fears of a looming recession.

Tuesday’s stock market respite was short-lived. The S&P 500 Index fell 2.1% today after the yield curve inverted, an indicator of an impending recession.

Morgan Stanley expects the Fed will gradually move back to the zero interest rate policy it had between 2009 and late 2015.

Last week, the Energy Select Sector SPDR ETF (XLE) fell 3%. XLE had the largest decline among the sector-specific SPDR ETFs under review.

In developed economies like the US, the stock market and the real economy are closely linked.

Despite frequent criticism from Trump, the Fed went ahead with four rate hikes last year.

Among Berkshire Hathaway’s financial holdings, JPMorgan Chase was the worst performer, while Goldman Sachs was the top performer.

In his annual shareholder letter, Buffett lamented the lack of big acquisition opportunities.

George Soros added 2.026 million shares of the SPDR Select Sector Fund (XLF) to its portfolio during the fourth quarter, giving it a weight of 1.5% in the portfolio.

As of February 14, Citigroup stock has risen 19.9% in 2019. Citigroup has outperformed the top US banks with its returns.

Berkshire Hathaway is the largest shareholder in Wells Fargo (WFC), Bank of America (BAC), U.S. Bancorp (USB), and American Express (AXP).

Bank of America (BAC) has impressed investors with its financial performance. We expect Bank of America to sustain the momentum in 2019.

Today, Sun Trust Banks and BB&T announced a merger that would create the sixth largest bank in the United States.

Apple (AAPL), which was Buffett’s top holding at the end of the third quarter, saw a selling spree in the fourth quarter.

Bank of America (BAC) and Goldman Sachs (GS) outperformed analysts’ estimates, which drove their stocks higher.

Bank of America posted an EPS of $0.70 during the fourth quarter, which beat analysts’ estimate of $0.63 and rose 49% on a YoY basis.

On January 16, Bank of America announced stellar fourth-quarter results. The bank had lower costs, which supported the bottom-line growth.

On January 15, JPMorgan Chase (JPM) reported weaker-than-expected fourth-quarter results. The revenues rose ~4% on a YoY basis.

Citigroup’s (C) total revenues of $17.1 billion fell short of analysts’ estimate of $17.6 billion.

Bank of America’s equity and quantitative strategist, Savita Subramanian, expects a decline in the S&P 500 (SPY) in 2019—compared to 2018.

JPMorgan Chase (JPM) is scheduled to announce its fourth-quarter financial results on January 15.

During the last reported quarter, Citigroup’s efficiency ratio was 56.1%—down from 56.6% in the same quarter the previous year.

Floating rate notes (or FRNs) act as cushions during periods of rising interest rates.

The Dow Jones Industrial Average surged 617.70 points on November 28, its second-biggest gain this year after the March 26 rally of 669.40 points.

In a note published last week, Bank of America Merrill Lynch equity and quantitative strategist Savita Subramanian said, “We believe the peak in equities is likely before the end of 2019.”

Bank of America’s (BAC) total assets grew ~2.4% year-over-year in the third quarter and reached ~$2.34 trillion.

Bank of America reported third-quarter non-interest expenses of $13.1 billion.

Bank of America (BAC) reported third-quarter revenues of $22.8 billion, surpassing Wall Street’s forecast of $22.7 billion.

Bank of America posted Q3 EPS of $0.67 on October 15, beating the estimate of $0.62 and marking ten straight quarters of earnings beats.

On October 16, Morgan Stanley (MS) shares were trading ~2% higher during the pre-market trading session.

As of October 15, of the 29 analysts covering Citi stock, 21 have given it “strong buy” or “buy” recommendations, seven have given it “hold” recommendations, and one has given it a “sell” recommendation.

JPMorgan Chase’s Consumer and Community Banking segment has risen at a relatively faster pace due to higher interest rate spreads.

JPMorgan Chase (JPM) stock was 1.5% higher in pre-market trading today after it kicked off its third-quarter earnings on a strong note.

Bank of America (BAC) plans to report its third-quarter results on October 15.

Analysts are bullish about Citigroup (C) and foresee mid-teen growth in its stock price from its current level.

Citigroup is looking at areas outside the United States to expand its lending book, add credit card business, and add new assets under management.

Citigroup (C) is scheduled to report its third-quarter earnings results on October 12.

Continuous investigations and litigations are hurting Wells Fargo’s (WFC) bottom-line results.

The US mortgage market is facing a slowdown, with mortgage rates increasing due to the Fed’s hawkish monetary policy.

Wells Fargo (WFC) is scheduled to report its third-quarter results on October 12. It’s expected to post EPS of $1.17, implying a growth of 12.5% YoY.

The Commercial Banking segment is likely to continue driving JPMorgan Chase’s (JPM) revenue mainly due to the higher interest rate spread.

Banking stocks closed lower on Wednesday after the Federal Reserve raised interest rates a quarter of a point to 2%–2.25%.

JPMorgan Chase (JPM) is currently trading at a PBV ratio of 1.65x, a considerable premium to the industry (XLF) average of ~1.48x.

In an effort to retain existing customers and add new customers, JPMorgan Chase (JPM) has sweetened the offerings for its Sapphire accounts.

Bank of America’s (BAC) balance sheet has been improving. Its assets grew 3.3% YoY in Q2 2018 and reached $2.33 trillion.

In the second quarter, BAC’s core Consumer Banking segment reported net income of $2.9 billion compared to $2.7 billion in Q1 2018.

With a YTD return of 5%, Bank of America (BAC) is currently the second-best-performing stock among the five largest US banks.

JPMorgan Chase (JPM) registered double-digit revenue growth for two consecutive quarters. JPMorgan Chase has outperformed its peers.

In the last two quarters, Wells Fargo & Company (WFC) has seen a decline in its loanbook while its peers have managed growth of 2%–7%.

Wells Fargo & Company’s (WFC) net interest margin has traditionally been the widest among major bankers (XLF).

Wells Fargo & Company’s (WFC) operating performance has remained mostly stagnant since 2017, with no significant growth.

Wells Fargo is in trouble again, with the US Department of Justice suspecting potential employee fraud in its Wholesale Banking unit.

In the second quarter, Goldman Sachs’ assets under management increased by $15.0 billion to $1.5 trillion.

Goldman Sachs registered YoY growth of 27.0% in its second-quarter underwriting revenues.

JPMorgan Chase (JPM) has launched its much-awaited free digital investment platform—You Invest—with 100 free online trades for customers.

Wells Fargo’s efficiency ratios for the first and second quarters rose 290 basis points and 400 basis points, respectively, on a YoY basis.

Berkshire Hathaway has confirmed its investment in One97 Communications, the parent company of India’s largest digital payment platform, Paytm.

Shares of online brokerages were hit hard this morning after CNBC reported that JPMorgan Chase is launching a new digital investment app.

Citigroup’s (C) balance sheet has been growing at a faster pace in recent quarters.

The top five US banks—JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), and Goldman Sachs (GS)—all received bullish ratings from analysts.

On a TTM basis, JPMorgan Chase trades at a price-to-book ratio of 1.7x, while the industry average stands at 1.6x.

At the current 2.0% rate, the Federal funds rate is still very low when compared with the pre-recession rate of 5.25% in June 2006.

Since the start of July, the Financial Select Sector SPDR ETF (XLF), which has ~50% exposure to the banking industry, has gained ~5.2%.

Goldman Sachs (GS) has demonstrated a strong performance in the first half of 2018 as compared to a weaker 2017 mainly due to higher trading income, private market equity returns, debt lending, and transaction advisory fees.

US broad market volatility (VIX) rose sharply towards 40 in February 2018 as panic selling started on valuations and rate hikes.

In the second quarter, Goldman Sachs posted EPS of $5.98 compared to estimates of $4.66.

The total spending on Visa’s (V) network rose 11% to $2.1 trillion in the second quarter—slightly better than analysts’ estimates of $2.09 trillion.

Broader markets have risen in the past few months on corporate earnings and slower rate hike expectations due to the Trump administration’s criticism of the Fed’s hawkish policy.

While Wells Fargo (WFC) has seen a decline in its loan book this year, peers have managed growth of 2%–7%.

The Trump administration has seen through changes in the Dodd-Frank Act, reduced corporate tax, and is now targeting a trade war, higher rates, and possibly a currency war.

KKR & Co. (KKR) reported its second-quarter earnings on July 26. Its EPS was $0.49, which beat analysts’ expectation of $0.45.

Apollo Group Management has “strong buy” ratings from the five of the 15 analysts covering the stock in July.

Apollo Global Management’s (APO) PE ratio is 13.29x on an NTM (next-12-month) basis.

In H2 2018, Apollo Global Management’s (APO) real estate business could see a negative impact due to expectations of interest rate hikes.

The credit segment of Apollo Global Management generated management fees of $183 million in the first quarter, which reflects a rise of 15.6% YoY.

On August 2, Apollo Global Management (APO) is expected to report its second-quarter results. It’s expected to report EPS of $0.54.

Invesco (IVZ) reported its second-quarter results today, posting EPS of $0.66.

Berkshire Hathaway (BRK.B) stock has risen 4.7% in the last month and 15.9% in the last year.

Berkshire Hathaway’s (BRK.B) liquidity of over $115 billion is rising at a faster pace owing to strong cash flow generation.

Berkshire Hathaway’s (BRK.B) Insurance segment saw subdued growth in the second half of 2017 on reinsurance losses.

Berkshire Hathaway (BRK.B) had liquidity of $118 billion at the end of the first quarter.

The top five US banks’ trading revenues rose 10% in the second quarter to over $20 billion—compared to $18.55 billion in the same period last year.

Even though broader markets remained flat last week, US financials rose due to strong earnings growth from leading banks.

On July 20, State Street (STT) reported its second-quarter earnings. The company’s EPS was $2.05, which surpassed analysts’ expectations by $0.04.

T. Rowe Price’s (TROW) NTM (next-12-month) PE ratio is 15.19x, higher than peers’ average of 10.08x.

Of T. Rowe Price’s (TROW) total assets under management in the first quarter, $579.3 billion comprised equity, $135.8 billion comprised fixed income and money market assets, and $299.1 billion were multi-asset funds.