1/ JP Morgan Trounces Rivals
2/ GM’s Economic Warning
3/ Planning for Peak Yields
4/ Too Many Energy bulls?
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1/ JP Morgan Trounces Rivals
This year’s banking panic seemed to come and go with very little lasting impact on the market. However, the effect of the banking panic has caused longer reverberations within the banking sector. More than a century since JP Morgan, the man, saved Wall Street from the 1907 panic, his bank continues to play a dominant role in the space.
As regional banks came under severe strain, the large banks benefited as assets moved to the safety of systemically important institutions – an unintended consequence of banking legislation. JPM’s outperformance of the regional banking sector (KRE) paused in early May but has now recently broken out of a bullish triangle consolidation, which implies JPM remains the place to be within the banking sector.
2/ GM’s Economic Warning
“As goes GM, goes the economy” has long been a saying on Wall Street. That proved an ominous warning as GM fell into bankruptcy shortly after the 2008 financial crisis. GM may not be as representative of the economy as it once was, but it is still relevant as a barometer for the consumer. As can be seen in Chart 2 (below), GM has consolidated sideways since its 2022 bear market low. However, that’s all it has done, and it is currently resting precariously on support. Breaking the 2023 lows could spell significant weakness for this former industry titan.
3/ Planning for Peak Yields
The Fed’s Powell reported the views of the FOMC today, and the message was higher rates for longer. The statement did imply, however, that we may stay elevated for some time, but we are in the vicinity of peak rates. Therefore, an important question is, what is the best way to position oneself to take advantage of this development?
Franco Nevada (FNV) is a precious-metals-focused royalty streamer with an inverse relationship with interest rates. As can be seen in Chart 3 (below), climbing US 10-year yields pressure FNV and falling yields provide a tailwind. An interesting development has occurred. Despite one of the biggest rallies for US 10-year yields in decades, FNV has barely budged and stood resilient. If this price action continues, a peak and subsequent decline in US 10-year yields will likely enable a strong breakout to new all-time highs for FNV.
4/ Too Many Energy Bulls?
Crude Oil has once again become a focal point of attention as it is almost single-handedly pressuring headline inflation higher thanks to its sizable rally from the summer lows. However, as the trade has now become obvious to many, Oil Service stocks (OIH) are experiencing a reversal at clear overhead resistance. Resistance, reversals, and riveted investors are usually a bad mix.
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Originally posted 21st September 2023
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