It’s a big week for banks. But, has Wells Fargo given a huge warning that things may not be so great with America’s financial institutions?
This week, the big powerhouses of finance – Citigroup, Goldman Sachs, JPMorgan Chase, Bank of America, BlackRock, Morgan Stanley, CapitalOneand BNY Mellon – report their most recent quarter’s earnings.
Meanwhile, Wells Fargo already reported and, though the bank’s profits were higher, its revenue slipped compared with last year.
According to Gina Sanchez, founder of Chantico Global, that’s not a good sign for the rest of the industry.
“It is one of the best banks – if not the best bank – in America right now,” said Sanchez about Wells Fargo. “If they are having trouble garnering revenue, than what does that say for the rest of the industry?”
Wells Fargo’s lower revenuehappened despite diversifying away from the difficult mortgage origination market and into auto and other consumer loans.
“If you look at JP Morgan, Bank of America, and Citigroup, they’re still extremely dependent on trading and fixed-income revenue, and I think that’s going to be a huge headwind for the rest of the industry,” said Sanchez, a CNBC contributor. “If you look at Wells Fargo, their dividend yield is still head and shoulders above the entire industry. So, if they’re having trouble, you can bet that the rest of the industry is having trouble as well.”
However, Katie Stockton, chief technical strategist at BTIG, thinks Wells Fargo is being surpassed by other banks, at least when it comes to its stock from a technical perspective.
“If you look at Wells Fargo from an absolute perspective it’s obviously in a very steady long-term uptrend,” Stockton said. “But, if you look at it on a relative basis, it is losing relative strength versus the broader market and versus its peers. So that may affect the others in the group.”
Looking at composition of the ETF that tracks financial stocks, the XLF, Stockton notes that Wells Fargo is its largest holding. “But then in the top five we also have Citigroup and JP Morgan which look very, very different on their charts,’ she said. “Those stocks are a bit more oversold from an absolute and also from a relative perspective. There are some signs of exhaustion that suggest that maybe Wells Fargo will actually pass the baton to those names that may then carry XLF or the financial sector as whole again to new highs.”
To see the full discussion on the XLF, with Sanchez on the fundamentals and Stockton on the technicals, watch the above video.