Bank earnings have been running hot, but having bid the sector sharply higher for nearly all of 2016, and particularly since the election, investors are selling the news.
The latest two examples are Morgan Stanley (MS -2.2%) and Comerica (CMA -4.2%), both of which blew past estimates this morning. Comerica, for instance, is up a tidy 85% Y/Y, including a 38% run over the last three months.
There was a bit of caution among bank investors in the past couple of days, but they're back to buying low and selling high this morning as the initial results from Q4 begin to pour in. Among those reporting today: Bank of America (BAC +1.8%), JPMorgan (JPM +1.9%), Wells Fargo (WFC +2.8%), PNC Financial (PNC +2.4%), First Horizon (FHN -0.3%).
An early take from KBW's Bose George: Mortgage banking trends are weakening in line with expectations - with stronger volumes being offset by lower gain-on-sale margins. Higher rates are still filtering through though, and industry sources and recent data suggest volumes falling 10-15% this quarter.
Piper's Kevin Barker calls Wells Fargo's operating numbers "decent," but notes rising auto loan net charge-offs - 1.05% in Q4 vs. 0.87% in Q3, and 0.59% a year earlier.
Bloomberg's Alison Williams takes note of the positive signal of boosted buybacks at Bank of America, and calls cost cuts "key." It's hard to get too excited about any particular metric given the bank's near-50% run higher in the past few months.
Other players: Goldman (GS +1.1%), Morgan Stanley (MS +2%), Citigroup (C +1.6%), U.S. Bancorp (USB +1.3%), Regions Financial (RF +3.2%), New York Community (NYCB +1.3%), Huntington Bancshares (HBAN +2.2%), KeyCorp (KEY +2.3%)
Q4 earnings season kicks off tomorrow morning with Bank of America (BAC -1.1%), Wells Fargo (WFC -0.8%), JPMorgan (JPM -0.8%), PNC Financial(PNC -3%), First Horizon (FHN -2.1%), and First Republic (FRC -1.4%) all reporting. BlackRock (BLK -1.4%) is also due up tomorrow.
Among those next coming next week: Citigroup (C -1.2%), Goldman Sachs (GS -1%), and Morgan Stanley (MS -1.2%).
The KBE is up a whopping 40% Y/Y, including a 23.5% run since the election. It's lower by 1.9% on today's session vs. the S&P 500's 0.5% decline.
Giving well-fed financial sector bulls another reason to take some profits is the continued decline in interest rates over the past few weeks, with the 10-year yield lower by another six basis points today to 2.32% - it topped at about 2.60% in mid-December.
KeyCorp (KEY -2%), Regions Financial (RF -1.5%), Fifth Third (FITB -1.5%), State Street (STT -1.7%), MetLife (MET -1.9%), Prudential (PRU -2.9%), E*Trade (ETFC -1.5%), Schwab (SCHW -1.2%).
Yes, it was the holiday season, but don't discount the big move lower in the MBA mortgage application index over the past two weeks, says Piper's Kevin Barker. The latest data supports Barker's and team's view that refinance volume could drop 40-50% in Q1 from Q3 of 2016.
In addition to lower volume, limited demand for mortgages is likely to cause gain-on-sale margins to decline in the near-term, says Barker.
3:22 ET The press conference ends with stocks at or about session lows, the S&P 500 down 0.8%, the Dow down 0.7%, and Nasdaq down 0.5%.
3:14 ET Bill Gross chimes in ... Today's rate hike and hawkish expectations for 2017 may have marked the top of the bank rally, he says. Not all higher rates are created equal, and if Fed rate boosts flatten the yield curve, it wouldn't be good for bank margins, he says. Banks have reversed big post-hike gains, with losses now about inline with the S&P 500's 0.75% decline. Citigroup (C -0.6%), Wells Fargo (WFC -1.9%), JPMorgan (JPM -0.3%), New York Community Bank (NYCB -0.6%), PNC Financial (PNC -0.7%), BB&T (BBT -0.8%). Insurers give up their gains as well: Prudential (PRU -1.3%), MetLife (MET -0.8%), Lincoln National (LNC -1.8%).
3:09 ET Asked about Dow 20K, Yellen first says she's not going to comment on the level of stock prices, but then says - given the low level of interest rates - stocks seem to be valued within normal ranges.
3:06 ET "I do intend to serve out my four-year term (as Fed Chair)," she says, when asked if anything has changed on her immediate future given the election results. Whether she get another four-year term after that, or simply moves back to the Board of Governors is a question for another day.
2:59 ET Asked how she feels about the president elect's views on easing big chunks of post-crisis financial regulation, Yellen says she's thinks D.C. (Fed included) has done a good job of insuring against a repeat, and wouldn't be a fan of a big rollback. She does think the burden on smaller institutions needs to be relieved. As for any contact with the Trump team, Yellen says it's only been at the staff level and only to help ensure a smooth transition.
2:53 ET I'm not trying to give advice to the incoming administration, says Yellen, after opining that additional fiscal stimulus at this point is probably not necessary to get the economy back to full employment.
2:50 ET Up sharply in the immediate aftermath of the Fed rate hike and more hawkish expectations for next year, the banks have given up those gains, and turned lower. The KBE is down 0.4%.
2:46 ET Asked by CNBC's Steve Liesman if plans for big fiscal spending and tax cuts would alter the Fed's plans, Yellen says she won't speculate on their impact without more details. Some at the central bank, however, did incorporate greater fiscal stimulus in their forecasts, she says.
2:43 ET First questioner wants to know if the Fed hiked rates because Trump was elected. Yellen isn't biting, and notes today's hike, along with the more hawkish "dots" are just modest adjustements.
2:40 ET Continued moderate economic growth will warrant "gradual tightening," but the outlook is "highly uncertain" and the path of fiscal policy is unknown.
2:34 ET The post-FOMC meeting press conference is getting underway. The Fed minutes ago hiked the Fed Funds target rate 25 basis points to a range of 0.5-0.75%, and somewhat surprisingly ratcheted higher its expectations for 2017 rate increases - now seeing three vs. two expected at the last forecast three months ago.
The broad market indices have moved lower, with the S&P 500 down 0.4%.
The Republican sweep, with lower taxes, and deficit-led growth plans is a "major tailwind" for banks, says analyst Betsy Graseck in Morgan Stanley's 2017 outlook.
The big banks should now be though of as "growth stocks," as they will outperform in a rising inflation environment.
A "new age of bank EPS growth" is upon us, she says. noting favorites like Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), BB&T (NYSE:BBT), PNC Financial (NYSE:PNC), Regions Financial (NYSE:RF), SunTrust (NYSE:STI), U.S. Bancorp (NYSE:USB), Bank of New York (NYSE:BK), Northern Trust (NASDAQ:NTRS), State Street (NYSE:STT), AmEx (NYSE:AXP), Capital One (NYSE:COF), Discover (NYSE:DFS), and Synchrony (NYSE:SYF).
The FRBNY's William Dudley isn't concerned about the post-election jump in rates at the long end of the curve, and says the Fed is about to start following suit at the short end.
Even the dovish Charles Evans from the Chicago Fed admits inflation is getting closer to the central bank's target, and the labor market is close to full employment.
The 10-year Treasury yield had moved as high as 2.45%, but has pulled back to 2.40%, still up 1.5 basis points on the session.
On the regulatory front, Fed Governor Daniel Tarullo on Friday set himself up as the chief defender of the current bank regulatory regime, but whether his voice will be heard is a different story given the incoming administration, which looks to be staffed with those favoring a far lighter regulatory hand.
Financial sector stocks today are about doubling the S&P 500's 0.5% advance.
TBTF banks: Bank of America (BAC +2.3%), Citigroup (C +1.8%), JPMorgan (JPM +1.3%), Wells Fargo (WFC +0.9%), Goldman Sachs (GS +1.7%), Morgan Stanley (MS +0.4%)
Regional lenders: U.S. Bancorp (USB +0.7%), PNC Financial (PNC +0.4%), KeyCorp (KEY -0.8%), Fifth Third (FITB +0.5%)
Insurers: MetLife (MET +0.3%), Lincoln National (LNC), AIG (AIG +0.2%)
Individual issues: Bank of America (BAC -1.8%), Morgan Stanley (MS -1.2%), Citigroup (C -1.9%), M&T (MTB -1.1%), Flagstar (FBC -1.7%), Fifth Third (FITB -1.6%), PNC Financial (PNC -1.4%), Prudential (PRU -1.1%), Lincoln National (LNC -1.9%), Schwab (SCHW -2.1%), State Street (STT -1.8%)
No longer part of the financial sector as far as the GICS classification, REITs are enjoying the respite in rates. IYR +1.6%, VNQ +1.6%
Realty Income (O +4.1%), Vereit (VER +3%), Omega Healthcare (OHI +3.2%), Welltower (HCN +3.5%), HCP (HCP +2.7%), Universal Health (UHT +4.4%), W.P. Carey (WPC +2%), Lexington Realty (LXP +2.5%), Essex Property (ESS +1.2%), Aimco (AIV +1.5%), General Growth (GGP +2.6%), Brixmor (BRX +1.6%), Federal Realty (FRT +1.8%), Kimco (KIM +1.2%), Public Storage (PSA +1.4%), Life Storage (LSI +1.4%), Boston Properties (BXP +1.2%), Stag Industrial (STAG +2.4%).
More confidence that rates are rising for real this time, "wide-sweeping" regulatory changes to come, and a better FICC environment have analyst Brian Kleinhanzi upgrading Bank of America (BAC) and Goldman Sachs (GS +0.9%) to Outperform from Market Perform.
Kleinhanzi keeps JPMorgan (JPM +0.8%) and Bank of New York (BK +0.2%) at Outperform.
Turning to regional banks, KBW boosts its estimates for 2017 and 2018 for the large players, and upgrades Citizens Financial (CFG +1.9%) and Comerica (CMA +1.6%) to Outperform, while downgrading KeyCorp (KEY +0.3%) and PNC (PNC -0.2%) to Market Perform. The switch comes as KBW turns its focus on those lenders best positioned for a rising rate environment, and from regulatory relief, not to mention other levers should rates not rise.