The S&P financial sector is having its worst month in 30 years.
The group has fallen about 27% this month, taking a harder hit than the broader S&P 500, which has shed nearly 18%. Year to date, S&P financials are down 37% versus the index’s 25% loss.
These losses have pushed parts of the group to critical technical junctures, Matt Maley, chief market strategist at Miller Tabak, told CNBC’s “Trading Nation” on Thursday.
“There’s no question that a lot of these stocks are getting incredibly oversold. In fact, if you look at the KBE bank ETF, its weekly RSI chart — relative strength index — is at an all-time low,” Maley said.
“It’s never been anywhere near that low, so, it’s extremely oversold,” he said. “And, of course, some of the biggest names out there are equally or at least close to being just as oversold.”
One such name was JPMorgan, Maley said, adding that its RSI chart was the most oversold it has been “going back several decades.”
JPMorgan shares fell nearly 3% at Friday’s open, but regained most of the drop within an hour to trade around $85 a share.
European bank stocks have been “clobbered even more,” the strategist said, pointing to a chart of the Stoxx 600 Bank Index.
“They’re down over 40% [this month] and they also got to historic oversold levels last week. But this week, the group has stabilized,” Maley said.
“Even with all this big uptick in concerns about the coronavirus and the impact it’ll have on the global economy, these stocks, it seems like they’re trying to form a bottom,” he said. “We just want to see a little bit more upside movement before we can get excited about it, but it’s something that is at least giving us a glimmer of hope, at least in the banking sector.”
Gina Sanchez, founder and CEO of Chantico Global, said financials as a whole are “cheap on any level.”
“I completely agree that this entire sector is very cheap,” she said in the same “Trading Nation” interview, pointing to the group’s valuations.
Bank stocks are trading at roughly 8.3 times forward earnings estimates versus their 17.5 times long-term price-to-earnings multiples, according to Chantico Global.
“It is with out a doubt cheap. Now, it’s got things going against it and things going for it,” Sanchez said. “The positives are that the Fed and now the ECB have stepped in in size, and they’ve basically said, ‘We are determined to put [in] a bottom and ensure that the yield curve is steep.’ Now, that is enormous, particularly for banks, and so, I think to some degree, it creates a put for the banks.”
The Federal Reserve and European Central Bank have been pouring billions into their respective economies in attempts to stem damage tied to the coronavirus pandemic. The Fed’s recent emergency actions have included broadening its global currency exchange program, buoying prime money market mutual funds, purchasing $75 billion in Treasurys and cutting interest rates to zero. The ECB announced a 750 billion euro stimulus plan on Thursday.
With banks, “the challenge that you have is that even if they’re making net interest margin, which is a smaller part of their revenue schedule these days, they’re still going to have a hard time making fee income because a lot of IPOs, M&A, all of that activity, is going to be delayed or postponed,” Sanchez said.
There is also likely to be increased pressure for individual and commercial defaults, Sanchez said.
“Not that you will have defaults, but you’ll have a lot more pressure. And so I think that that’s really kind of what’s making investors sweat this out,” she said. “At this price, however, I think you’re being paid to take the risk that the Fed is going to stand behind these banks, and I think that that is enormously important.”
S&P financials were up less than 1% in early Friday trading. The KBE bank ETF was up nearly 1%. The European Stoxx 600 Bank Index was up more than 2%.
S&P Global Ratings said Wednesday the Fed’s recent quantitative easing, rate cuts and boost to short-term credit markets “will support financial stability, as well as banks’ liquidity, bolstering their ability and willingness to meet client demands for funding.”