Time to Buy the Financial Stocks?
Monday, July 19th, 2010
By Michael Lombardi, MBA for Profit Confidential
07/19/10 — Money was flowing on Wall Street last week. Add up the second-quarter profits of Intel (NASDAQ/INTC), Google Inc. (NASDAQ/GOOG), Bank of America Corporation (NYSE/BAC), JPMorgan Chase & Co (NYSE/JPM), Citigroup, Inc. (NYSE/C) and General Electric Company (NYSE/C) — which all reported their second-quarter profits last week — and you have $18.4 billion in earnings hitting the Street.
One would think it was time to rejoice! After all, corporate profits are on a roll again. But the market has been concerned with something else, something more serious for future earnings.
As we all know, on Thursday, Congress passed the most comprehensive financial reform since the Great Depression. Most financial institutions have publicly commented that the bill, which is over 2,000 pages, will have an impact on their future earnings. Unfortunately, the financial institutions have yet to figure out the exact financial impact of the new bill. Most banks are “still trying to figure it out.” And if there is something the stock market does not like, it is uncertainty.
The Goldman Sachs Group, Inc. (NYSE/GS) has agreed to pay the SEC 550 million dollars to settle its civil fraud suit. The penalty, the largest amount ever paid by a financial institution to the SEC, comes amid rumors that the SEC might lay other charges against Goldman
for more possible securities regulation breaches.
Hence, when you add the Goldman Sachs settlement and the unknown cost to financial institutions of the new financial reform bill, money is being taken away form the Street, not added.
Looking at the charts, the Dow Jones U.S. Bank Index is down 64% from its peak in early 2007. Comparatively, the Dow Jones Industrial Average is only down 24% over the same period.
We all know that the bursting of the real estate bubble hit U.S. banks hard. Now, through the new financial reform bill and hefty SEC fines, the government is giving big American banks a “you should have known better” slap in the face.
Would I jump into the financial stocks?
Despite the great earnings being generated by companies like Bank of America, Citigroup, and JP Morgan, I believe that the stock market is telling us these companies are far from out of the woods.
We need more information on how the financial reform bill will affect the U.S. bank stocks before making the decision to jump in and buy them.
Michael’s Personal Notes:
Yes, it is true. Effective January 1, 2012, all U.S. sales and purchases of gold and silver coin of $600.00 or more in value will have to be reported by the transacting dealer to the IRS.
Source: www.numismaster.com.
Where the Market Stands:
The Dow Jones Industrial Average opens this morning down 3.3% for 2010. I’m still of the opinion that we are in bear market rally that will take stocks higher first, before the next leg of the bear takes hold.
What He Said:
“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce
nonessential goods.” Michael Lombardi in PROFIT CONFIDENTIAL, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.
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