Seasonally, the SP 500 is entering one it’s strongest periods of the calendar year.<\/p>\n
The SPY’s YTD total return as of Friday, 10\/19\/18, was about 5%, while the XLF and KRE ETF’s returned -3% and -6% respectively, YTD.<\/p>\n
Client’s largest financial position for most accounts is Charles Schwab (SCHW), which is now down 8% in calendar ’18, being offset to some degree by CME’s 26% YTD return, and JP Morgan’s +3% YTD return.<\/p>\n
Refinitive IBES noted with this weeks earnings look, that Financial sector earnings growth for Q3 ’18 will be 44.5%, which is being boosted by the multi-line and P&C insurance businesses and the hurricane season from Q3 ’17, so if those two sectors are excluded, the expected Financial sector earnings growth falls to 33.7%, still not too shabby.<\/p>\n
The top SP 500 Financial weights:<\/p>\n
(Source: Morningstar data)<\/p>\n
Expected revenue growth for Q3 ’18 for the Financial sector is 8% and for the 4th quarter, Refinitive IBES is expecting 4% revenue growth, while Factset is expecting 3.4% and 4.7% respectively.<\/p>\n
The earnings growth for the sector is there, but the return is not, not unlike the SP 500 in 2018, which is seeing 23% y\/y earnings growth, but the YTD return for the SPY is just 5%.<\/p>\n
Summary \/ Conclusion: <\/strong><\/em>Can the Financial sector play catch up with the SP 500 into the final months of 2018, assuming that we get a seasonal market rally into year-end 2018 ? The best years for the Financial sector, such as 2013 and 2017, were also good years for the SP 500, returning 32% and 22% respectively.<\/p>\n Chris Verrone, the excellent technician at Strategas Partners, came through Chicago this summer and noted that – in his opinion – the three value sectors within the SP 500 were Energy, Industrials and Financials.<\/p>\n Schwab is Trinity’s largest individual Financial sector position currently, (and has been for close to 7 – 8 years, maybe longer) and I do think the stock is still 10% – 20% undervalued. The drag on the stock is the price war happening within the traditional “discount broker” sector, with firms like Fidelity and TD Ameritrade. Commissions have been cut to $4.95 the last few years and Fidelity launched a set of “zero” cost market index funds that have a zero expense ratio. Eventually I think Schwab gets to zero commissions, as does the rest of the sector. These former “discount brokers” are now asset gatherers, with Schwab’s $3.5 trillion in assets under management dwarfing TD Ameritrade, and even Goldman Sachs and Morgan Stanley. (Fidelity is still a private company, but it looks like their assets under management are $2.1 trillion.)<\/p>\n Schwab grew EPS this year 50%, a lot of it tax-rate reduction aided, so ex the tax cut, I’d suspect Schwab still would have grown EPS 20% in calendar ’18 and is expected to grow EPS 17% in 2019, with a 16x multiple on the stock.<\/p>\n A more in-depth, bottom-up, research piece will be posted to Seeking Alpha in the next 24 – 48 hours on Schwab. Check the SA site for a more detail and valuation work.<\/p>\n Thanks for reading.<\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Seasonally, the SP 500 is entering one it’s strongest periods of the calendar year. The SPY’s YTD total return as…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[67,84,53,27,36],"tags":[],"class_list":["post-8286","post","type-post","status-publish","format-standard","hentry","category-cme","category-financial-sector","category-financials","category-jpm","category-schw"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8286","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8286"}],"version-history":[{"count":10,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8286\/revisions"}],"predecessor-version":[{"id":8307,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8286\/revisions\/8307"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8286"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8286"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8286"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}