Big banks had a phenomenal year in 2012.
Can the bull run in bank stocks continue in 2013?
In an interview with The Daily Ticker, Atwater says the time to be bullish on financials was in October of 2011, a period when bank stocks were beaten down and uncertainty over new financial regulation spooked investors. Ultimately, the U.S. banks most exposed to government regulatory actions – such as Bank of America – experienced a bounce in their stocks as investors priced in policy outcomes (Atwater likens these stocks to “options” on policy decisions).
Big bank stocks may have a little more room to run according to Atwater, but that has not stopped him from advising clients to take profits.
Banks are at "the top end of the cycle," he says. "A lot of the big banks are likely to see the flip side of the coin this year. A tailwind can quickly turn back into a headwind."
Two headwinds that could impact the financial services industry to the downside include new leadership at the FDIC and the departure of Treasury Secretary Tim Geithner. Atwater does not recommend shorting bank stocks and instead suggests buying shares of smaller, regional banks that are less impacted by U.S. federal policy. (Atwater has a position in JPM).
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