Strong Grades for 3 Bank Stocks With Earnings on Deck
Yields on two closely-watched Treasury instruments crept above key levels this week. The yield on the 30-year U.S. Treasury Bond climbed back above 5% (left chart), while the 10-year U.S. Treasury note saw its yield rise back above 4.5% (right chart).
Banks profit from rising interest rates due to the resulting expansion in net interest margin. This allows banks to widen the spread between the cost of borrowing versus cost of lending.
The 10-year note in particular is worth watching, because of its influence on mortgage rates. If mortgage rates start creeping higher, that’s bad news for banks, right?
Not necessarily. Rising rates can stimulate lending, due to fears that rates could move even higher. If you’re in the market for a loan, you might soon get a call from a loan officer, imploring you to hurry up and lock in at current rates while you can.
The Industry Bellwether
The State Street Financial Sector SPDR is a bellwether for the financial services industry. Since March 27, this ETF has gained 16%. XLF’s rising 50-day moving average just crossed above its rising 200-day moving average, a bullish momentum signal (circled).
This strength isn’t confined to the biggest banks. Regional banks are also enjoying a good run. The State Street Regional Banking ETF ($KRE) closed at an all-time high earlier this month (arrow).
Momentum in the banking sector is building just as the biggest names in the industry are preparing to report earnings. Let’s go to the charts to find the top names in the banking sector right now.
1. Fifth Third Bancorp (FITB)
Last week, California-based Fifth Third Bancorp ($FITB) reached its highest price in over 20 years. The stock has climbed 18.5% year-to-date, well ahead of the S&P 500’s 10% gain. Fifth Third has recently caught two strong bounces from its 50-day moving average (blue).
Fifth Third boasts a dividend yield of 2.83%. The company is scheduled to report earnings before the open on July 17.
GRADE: A-
2. Citigroup (C)
Manhattan-based Citigroup ($C) is nearly keeping pace with Fifth Third, gaining 17.5% year-to-date. This stock has also found buyers (arrows) in the vicinity of its 50-day moving average (blue). A decline to that level would make an intriguing entry point.
This stock has a current yield of 1.72%. Citi is scheduled to report earnings before the open on July 14.
GRADE: A-
3. JPMorgan Chase (JPM)
Shares of JPMorgan Chase ($JPM) reached an all-time high last week, yet the stock has gained just 3% year-to-date.
While JPMorgan Chase has underperformed both its sector and the broader market, its path of least resistance is higher. The breakout from a recent cup and handle pattern (shaded yellow) bodes well for the stock’s future direction.
JPMorgan currently has a dividend yield of 1.79%. The New York-based investment bank is scheduled to report earnings on July 14.
GRADE: B
At the time of publication, Ponsi had no positions in any securities mentioned.
