October volatility in the banking industry ($DJUSBK) has been nothing short of crazy! On September 30th, the DJUSBK stood at 457.39. A little more than two weeks later, we show an index value of 460.82. No big deal, right? Well, October began with that infamous ISM manufacturing number of 47.8 showing economic contraction. The immediate response was a tumbling in the 10 year treasury yield ($TNX). In three days, the TNX fell from 1.76% to 1.51%. Over those same three days, the bank index fell from 462 to 429. But then a week later, the Federal Reserve stepped in. There was a spike in the overnight cost of borrowing, so the Fed decided to institute a 6 month (minimum) plan to buy $60 billion of treasury bills per month, which had the immediate impact of lowering short-term interest rates - exactly what the Fed wanted. The plan moved into effect on October 15th. The positive for banks is that the plan to lower short-term borrowing costs in effect helps to wide the yield spread between shorter-term and longer-term maturities. That will morph into much stronger net interest margins for banks. Banks, of course, surged on the news:
The red circle highlights the October volatility and back and forth action. The blue circle, however, highlights something we haven't seen in 2019. In the past, the PPO centerline has failed to offer any support. It's been different this month as banks now appear to be acting as though they're in an uptrend. I believe this move is going to result in a breakout in the banks. Earnings reports from the industry this week would back up this argument as JP Morgan Chase (JPM), PNC Financial (PNC), and Bank of America (BAC) either approached or set new 2019 highs after reporting results.
Friday morning at 9am EST, I'll be hosting a webinar at EarningsBeats.com and Mary Ellen McGonagle of MEM Research (and my former Friday co-host on MarketWatchers LIVE) will be joining me. It will revolve around earnings season and where each of us sees opportunities in Q4 and into 2020. We both scour hundreds and hundreds of companies during earnings season, so it should be both fun and educational to see which companies' earnings reports we've liked so far.....and which upcoming earnings reports we have our eyes on.
Instructions for attending this FREE one-hour event will be sent out to our EarningsBeats.com community. You simply need to be at least an EarningsBeats Digest subscriber (free newsletter) to receive instructions. The instructions to join the webinar will be sent out early Friday morning as part of our Friday newsletter. To subscribe (for free), simply CLICK HERE.
I hope to see you there!
Happy trading!
Tom
