The Banks and the Stock Market
Jul 18, 2011
Posted by Jody Eisenman | Filed under Uncategorized
As readers of this blog know, the bank stocks have generally played a prominent role in market direction in both bull and bear markets. We all remember Citicorp and Bank of America showing five-fold increases from the bottom in 2009. As such, the performance of the banks this year must be viewed with some trepidation. Thus far year to date, the S & P 500 is up about 4.5%. However, the banks as measured by the ETF XLF are actually down about 6.5% for the year. Recently, we have seen BAC decline from 15 to 10, and even mighty GS dropped from a high of around 170 to 130. In fact, virtually every money center bank is currently trading near their 52 week low. Whether it’s exposure to the Eurozone, lack of earning’s visibility or potential lawsuits, the financials have not been the place to be in 2011.
In the pending debt ceiling crisis, there seems to be little progress. Although President Obama has gotten personally involved and wants a long term solution, there doesn’t seem to be much movement on either side. Currently, there is a bipartisan effort to raise the debt limit in exchange for $1.5 trillion in spending cuts over the next ten years. It would probably pass the Senate, but in the House, where hard core Tea Party members reside, approval is less certain. Despite all the Republican protests against tax increases, I truly believe that the only fair compromise is one that both cuts spending and raises taxes. Let’s face it, we’ve been overspending for an eternity, and it’s time to show some fiscal restraint. The deficit cannot keep rising forever. If the US were a corporation, there’s a good chance that our debt rating would be substantially lower than our current AAA rating. However, both S & P and Moody’s have warned that a downgrade may be imminent if a default actually occurs. The deadline is August 2nd.
