Eoin Treacy's view -
The country’s biggest financial stocks have surged more than 5 percent in two days, an early payday for bulls who have piled in on speculation the end of zero-percent rates will stoke a profit revival. Securities tracking the industry have attracted $1.7 billion in the past month, the most among 12 sectors tracked by Bloomberg except Energy.
Bulls are looking for something that has been elusive -- a rally big enough to erase the losses banks suffered in 2008, their worst year since the Great Depression. The group has been a favorite of global money managers for two months even as stress in the junk bond market evokes comparisons to the subprime meltdown.
The Fed hike “does provide the first wave of relief for the financials and so we have moved to an overweight position in the last two quarters in financials in part with this expectation,” said Leo Grohowski, who helps manage more than $184 billion in client assets as chief investment officer of BNY Mellon Wealth Management in New York. “This is welcome news for the financial sector.”
Fund inflows and the options market show the extent of optimism on banks at the end of an unprecedented stimulus campaign by the Fed. Since mid-November, money sent to stock ETFs such as the Financial Select Sector SPDR Fund has accounted for about a third of the total deposited to all sector funds, data compiled by Bloomberg show.
This year’s Contrary Opinion Forum was the best one I’ve been to and I learned a lot from Michael Vardas, of Northern Trust Capital Markets, presentation. He made a number of points about how the burden of additional financial sector regulation across jurisdictions represents a headwind to the ability of large banks to increase their dividends meaningfully. The low interest rate environment also represented a headwind because banks were losing money on money market funds since they were not covering management fees. So how has the sector been affected by yesterday’s rate decision?
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