US banks busy distributing stimulus

Market Trends - 02/04/2020

Early indications from the accounting industry point to a large amount of transactions requiring processing to access the boatloads of $2.2t in US cash on the table. The duration of the disbursements is likely to extend well into 2021.

The financials are tracing the same pattern the broader market traces since 22.2. While the demand for practically everything except food and medicine, has collapsed, the demand to process small business assistance and backstop cash, for the small side of the economy that is $320b that seeks transacting services now.

We view bank stocks under a distinguishing filter that divides the industry into high beta, meaning high volatility and quality, meaning stress test robustness and deep capital reserve.

The quality bank we consider is JPM, while Citi, WFA, BOA and Goldman are the high volatility (Beta) as they display higher stock price volatility.

In the case of JPM holding the stock for a longer period, will likely present smoother recovery and therefore better suited for a longer-term trade.

Citi, WFA, BOA and Goldman being more volatile are likely better suited for shorter term trading with tight stops to protect against manic movements.

In either case, in house research shows evidence that BOA has a group assembled to assist petitioners for assistance funds. Large money center banks, including the quality ones, profit from transacting in an economy. While most transactions in the world economy have ground to a shuddering halt, transacting the huge largess being dished out amounts to a great deal of transaction processing fee for banks.

Ahshok Bhati, Deputy CEO of fixed income at Neuberger Berman was heard on Bloomberg saying that the US government will always back up the debt of its banking system. This surety is likely to boost the attractiveness of both classes of the banking sector.

In JPM’s case, should price remain above the 92.25 level and break above 107.23 it could continue on to the 113.92 level indicating, via Fibonacci retracements of .23, .38 and the .5 levels respectively.

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