What’s Next for the Big Bank Trump Rally Barometer?

The action in markets last week, and again today, can perhaps best be described in a single word …

Stalled.

Last Tuesday’s 1%-plus decline nearly across the board was the first such decline in the major averages in 110 trading sessions. So, to say we were overdue for a pullback is to state the obvious.

Yet since that sell-off, markets have basically traded only modestly lower. And that’s despite the major blow dealt to the Trump agenda in the form of the defeat of healthcare reform.

One sector that has seen more than its share of selling of late also happens to be the sector that’s led the Trump rally higher, and that sector is banks and financials.

Indeed, the gains in large-cap banks and financials, as well as those in regional banks, have been stellar.

Over the past six months, the SPDR S&P Bank ETF (KBE) is up 27.3% while the SPDR S&P Regional Bank ETF (KRE) is up 27.7%.

Those numbers dwarf the gains in the SPDR S&P 500 ETF (SPY) of just 9.1% during the past six months.

Yet if we look at the performance of these three funds over the past month, the story is markedly different.

Although the SPY is down, it’s only off 1.3%. Meanwhile, KBE is down 7.5% while KRE fell 8.1% during the past month.

And if we look at the performance over the past week, we can really see the disparity …

Over the past five trading sessions, SPY is down 1.3% while KBE slid nearly 4.9%. KRE is in even worse shape, dropping 5.3% in that time.

Now the market is asking itself an important question:

Is this marked underperformance of banks and financials going to continue, or is the selling just about over?

One leading advocate for the camp that argues that banks and financials are headed lower from here is famed bank analyst Dick Bove.

Bove is vice president of equity research at Rafferty Capital Markets. In a recent interview with CNBC, he offered the following assessment of the current bank stock action, and the sector’s future:

"There’s a reason why all these bank stocks are cratering. It’s because of the belief that none of the Trump programs will be put into effect.

"The understanding is growing that all of the reasons that people had for buying bank stocks in November are dissipating, they’re gone …

"If you’re not going to get tax cuts, if you’re not going to get fiscal stimulus, if day-to-day business is lousy right now, which it is … if the recognition of all of these factors suddenly dawned on the investor, they do what they’re doing right now — they pile out at the exits, they take their profits."

Sure, last week’s policy failure on healthcare reform was certainly a blow to the Trump agenda.

However, I think it may be a bit premature to write the obituary on the rest of the Trump agenda. Particularly when it comes to tax cuts and infrastructure spending.

On the flipside of the Bove coin is the sentiment laid out in a recent Wall Street Journal article titled, "Bank Stock Party Isn’t Over After Pullback."

The article cites positives such as higher interest rates and less regulation of the industry as key drivers of bank stocks going forward.

The Federal Reserve appears set to raise rates two or three more times this year. For now, most banks benefit more from increases in short-term rates than long-term ones since many loans are priced against short-term benchmarks.

As for regulation, the article says big regulatory reform, such as scaling back enforcement of the so-called Volcker rule (which bars proprietary trading by depository institutions) would help the biggest Wall Street banks.

And, it suggests that these banks also are good values here.

Per the WSJ:

For example, Bank of America (BAC) and Citigroup (C) continue to trade at discounts to book value. The rest of the pack isn’t demanding either in overall terms, with the KBW bank index, having hovered just around book value for the past several years, now fetching 1.2 times book value.

So, higher interest rates, deregulation and valuation is the argument here for a continuation of the bank stock rally following the current pause.

Both viewpoints could be turn out to be right.

In the shorter term, banks are likely to suffer more selling from the unwind of the Trump-agenda trade and the healthcare misfire last week.

In the medium and longer terms, the rising-rate environment, the president’s penchant for less bank regulation, an improving economy and those attractive valuations this latest sell-off is producing will be a good buying opportunity in banks …

Provided, of course, you are prepared to handle the short-term volatility.


Today we happen to have a way you can profit from those market-induced jitters. If not yours, then just about everyone else’s.

Take it away, Sean …


Mining for Money

Buy this Copper Crunch

By Sean Brodrick

Investors are getting a case of the jitters watching copper’s recent trading action. Since mid-February, copper has been in a big correction. And it’s handing you an opportunity.

This pullback has implications for all kinds of markets beyond metals. Investors call this metal "Doctor Copper," because it has a Ph.D. in economics. When copper prices go higher, the global economy heats up. When copper prices go lower … well, you can see why people get worried.

Don’t worry. Be happy. And buy this danged pullback.

Let me show you the Big Picture in copper …

Longer term, copper broke out of a multi-year downtrend. So, some pullback is to be expected. And it’s a buying opportunity for copper and the companies that produce it.

Let me give you three copper-plated bulls for this year.

Lack of Big, Rich Deposits. Copper mines must be big to make any economic sense. They require a LOT of investment. Too bad that most of the big deposits have already been found. In fact, only six big new projects to build mines or expand existing operations will be completed by 2020.

Tightening the squeeze, the grade of copper ore coming out of the ground is half what it was in 2008. That means miners get half as much copper with every ton of dirt.

And the long bear market didn’t help. That forced copper companies to mine their richest grades. Now, that ore is gone — used up.

Watch China. Asia, especially China, accounts for 62% of the world’s copper usage. Sorry, Uncle Sam, but you use only 14%.

So, it’s bullish that imports of copper into China rose 1.9% in the first two months of 2017, to 2.7 million metric tons. In fact, Chinese copper demand looks poised to rise all year.

China is mainly used for copper wire. And a lot of that goes into infrastructure. China plans to spend $720 billion on infrastructure projects over the next three years.

Labor Troubles Squeeze Supply. So far in 2017, we have seen production stoppages at major mines like and BHP Billiton’s (BHP) Escondida mine and Freeport-McMoRan’s (FCX) Grasberg mine. Escondida alone produces 5% of the world’s copper.

Just in Chile alone, a whole gallery of copper companies face tough labor negotiations: Antofgasta with its Zaldivar Mine, Glencore with its Altonorte Mine, Anglo American and Glencore (again!) with their Collahuasi joint project, Teck Resources in its Quebrada Blanca Mine, and Lundin at its Candelaria Mine. And that means more production could be lost to strikes.

We’ve already seen 200,000 metric tons of copper production lost to strikes so far this year. Annualized, that would be 10% of global production.

Prices are made on the margin. So this all points to prices getting squeezed higher.

So why have copper prices — and miners — been under pressure lately?

Some investors fear that Donald Trump won’t be able to follow through on his plans to rebuild America’s infrastructure. A plan that requires a lot of copper.

But as I’ve shown you, the U.S. is a small piece of the global copper demand picture. China is much more important.

I think we should see a rally coming in the iPath Bloomberg Copper ETN (NYSE: JJC), which tracks copper prices.

The JJC has been in correction along with miners. But if supply gets crunched the way I think it will, this fund could follow copper prices much higher.


If you have a comment or question about today’s Afternoon Edition topic, or any of the topics we cover, let me know. All you have to do is leave me a comment on our website or send me an e-mail.

***

The Dow closed lower for the eighth day in a row, something it hasn’t done since 2011. It was down triple-digits to start Monday’s session, but pared its early near-1.2% loss to a 0.2% loss by day’s end.

• Dollar at four-month low: The U.S. Dollar Index slid after Friday’s healthcare bill failure and after Budget Director Mick Mulvaney indicated that repealing and replacing the "Affordable Care Act" is no longer a priority for the administration’s first 100 days.

• Healthcare was the day’s best-performing sector: The Health Care SPDR (XLV) gained almost 0.3%, followed closely by Materials (XLB). Technology (XLK) was flat and the remaining S&P sectors ended the day in the red.

• Who will win the rights to stream Thursday Night Football? Spring training is wrapping up here in Florida, and baseball season starts in earnest next month. But football is on everyone’s minds at Twitter, which won the rights to broadcast select games last year. Facebook, Amazon and Google’s YouTube are also looking to pay the NFL for this premium content, and the bidding has already begun in earnest.

• Big Brexit milestone ahead: Theresa May said she will trigger Article 50 on March 29, which means Brexit will be completed by that date in 2019.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “What’s Next for the Big Bank Trump Rally Barometer?”

  1. About copper, pig farmers in china stacked up on it on the cheap , China wants the price to go down. Buying it makes price go higher as pig farmers knew China GTP could not stay up without it. It is at best, a very short term bet for copper. ONLY, If I save or make you at least $250,000 please send me 0.20 % @tquill5@yahoo when you do, less than that it is up to you in any case you absolutely owe nothing to me. It is up to how you feel good about making a lot of money.
    In china anyone may want to buy something to protect themselves based on what cost they can afford. At that time per their budget they buy waiting to sell later with the hope to obtain what cost more. China must to save face, at some time “soon” trade pig farmers; something of value or of threat, for their copper to keep tons of price down for “them” that they may not use. By the pig farmers selling that copper to China it will lower the price and “look” like China is growing. Think; saving face, GTP, money borrowed and spent on military, its future, investors (why are just more help of other kinds of trade and protection against refugees without a fence…) . So a higher price yes, but how long?
    What if at some time ( less than 3 months) china admits to buying its own copper and the thought there is more to buy is given ; then the price goes back down and China can buy it cheaper and keep its options open. Really it is all about the oil in the sea they want.
    If everyone was smart they would tell china to back off in return for 1) a share of it, 2) a shared cost or route of passage for everyone (saving up and other reasons) 3) the promise not to change the conditions and protection for their agreed claim. and with their help, against unknown enemies and a peace accord with all parties involved to share resources and cost and only after approval of a vote. They would save money and war and protect against what they fear at this time, 4.5 speed of sound weapons that is only a trade away!

  2. Hi Brad,
    Lord knows, God knows, we are FAST approaching that capital markets point called “Exhaustion” There are simply TOO MANY canaries in the coal mine, and it should be interest rates, commodities (Dr.Copper, Gold etc.), the weakening bank sector, European Sovereign Debt Crisis (aka massive European Banking Crisis based on unsustainable banking leverage, demographics (Baby Boomers way past spending peak, Millennials too young and in debt to spend, geopolitical problems, student debt, personal debt, sinking wages, etc..etc..etc..that will all converge roughly now, and at the same time, along with the VERY important technical and cyclical indicators that say NOW, this year is the beginning of the Bear market…We shall see shortly !!

  3. Excuse me, but interest rates will NOT be going up. As long as the velocity of money is at very depressed levels, there will be no upsurge in inflation and, therefore interest rates. Isn’t the Fed raising rates? No, the Fed does not control interest rates. Also, at the same time, there are huge DEFLATIONARY forces in the whole Western Global economy due to enormous DEBT!
    Also, I don’t think that Trump has the capability to push ANY of his policies through the Congress! We have to wait and see, as he likes to say.

  4. i just wonder when all of this stuff will crash. police violence in your country and in germany, austria and holland, cannot have any lasting economic sense to it. as the violence grows who is gonna do anything? it is a worldwide phenonomum, with russia now being plagued by soros funded protests(illegal, as the protestors went where they shouldn’t have as per their permit) and the organiser jailed for 15 days. Russia, as you may be aware is the most balanced and creditable economy in the world right now : the russian miracle, despite the wests determination to crush that country. your elites don’t like it because it makes russia totally independant. and why? THAT COUNTRY MINDS ITS OWN BUSINESS and doesn’t have ‘neurotic’ tentacles all over the plant. despite the ‘western bullshit’ press, funded by arseholes is going to cause unimaginable disaster in good ol’ usa soon and most of your people are completely unaware. even the the usa military has ‘suddenly’ discovered (old hat for some) that your whole electricity grid can be destroyed in a nano second by russian device that completely destroys your 55,000 antiquated sub stations across the nation. it will take 15 YEARS to rehabilitate. what to do? stop blasting russia. donald trump is battling terrific ‘headwinds’ in his desire to befriend this country: russia. another thing, why is the obama oracle’s home so close to the airbase in omaha where almost all of the airshipments of drugs from, vietnam, laos and afghanistan lands? and why did ex pres. obama (now on the run from the fbi, facing drug importation charges, 4.25 tons cocaine ‘worth’ US$125m.via the good ship ‘lady michelle’ stalled by american coast guard aeroplane a few days ago in the carribean, such cargo traced to obama, who is now in tahaiti..no extradition allowed by the french to u.s.a.) meet with the ‘oracle’ en route to tahiti? is there something more than ‘expert’ market knowledge by the ‘oracle’ in amassing his personal fortune? one really wonders. it is no mistake that fact is stranger than fiction. when one links the clinton cartel with george soros, obama and the ‘oracle’ things start to make sense, i think. and why are the media moguls, top banksters, politicians so nervous about trump? maybe one could look no further than pedophile island in the carribean run and owned by geoff epstein ( in cahoots with bill clinton) and ask geoffrey a few questions about ‘randy andy'(prince andrew) and the rest. that could be quite a show, so hush about the aforementioned nervous nellies activities on pedo island, all videoed of course by geoff and locked away for production when and if required. so there you have it : big banks? trump rally barometer? things go a bit deeper than that i think. good luck!

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