Pro Perspectives 7/15/20

July 15, 2020

Yesterday we talked about the banks, in particular, the record Q2 performance of JP Morgan. If you needed more convincing that the trillions of dollars in stimulus were a gift to the banks, Goldman Sachs should have convinced you today. 

Goldman grew revenues by 41% compared to the same period a year ago (second biggest quarter ever).  And they beat the street’s estimate on earnings by 65%.  That’s one of the best quarters ever, and that’s after they stripped out (set aside) almost a billion dollars in profits for “provisions for litigation and regulatory proceedings.”  This is Goldman’s version of earnings management, nothing different the $26 billion set aside yesterday by Citi, JPM and Wells for “provisions for bad loans.” 

Bottom line, with the Fed absorbing all credit risk, and flooding the country with money, the banks are profit printing machines

With that, as we discussed yesterday, this should be a greenlight to buy the bank stocks.  And that’s supported by this very compelling chart …

In this chart, you can see we have a big technical reversal signal (an outside day) in technology stocks (the XLK) on Monday.  And now we have the banks revealing their position of strength in this bazooka-stimulus world.  Perhaps we have a reason to finally see some money rotate out of the high flying tech giants and into financials.