Citigroup (C) is now the third bank in the past two trading days to post better than expected earnings for the second quarter, thanks in no small part to improved set asides for loan losses and price adjustments to its bond portfolio.
Like JP Morgan (JPM) and Wells Fargo (WFC) before it, it could be argued that Citi's results were somewhat priced-in, as all three stocks have enjoyed roughly 25% rallies so far this year, with shares of Citigroup doubling in the past 12 months and now testing a 52-week high today.
While these so-called "diversified financials", with their multiple business lines and global exposure, tend to be better able to weather market turmoil, their regional bank (IAT) rivals are starting to show signs of strain, be it from rising rates, economic worries or simply because they've come too far too fast. There is clearly a rift within the 80 stocks that make up the financial sector (XLF), as well the broader markets.
"The closer you get to the regionals, the more you have to actually put up numbers. It makes sense to pause a little in buying those stocks" my co-host Jeff Macke says in the attached video. "I think the pause is going to refresh (the financials) barring anything catastrophic."
In fact, if you examine the volatility of the past week alone, you'll see the new leadership is in big tech (^NDX, XLK) and utilities (XLU), and not in the big banks (^BKX) despite their "strong earnings" and improved loan losses.
In the meantime, investors are already keying in on Goldman Sachs (GS) ahead of its result due out tomorrow morning. Like the big lenders, the world's leading investment bank and trading firm is also having a "25% year", but that was achieved before the historic bond crash last month.
"Let's see how those desks did with rates flying all over the place" Macke says of Goldman's coming quarter.
Add in concerns about the possible restoration of the Glass Steagall Act and it's easy to see why investors might be getting a bit cautious on banks.