Brokerages Defy Gravity
Brokerage stocks are acting irrationally.
Despite an especially weak summer for investment-banking work, and research analysts lowering their third-quarter earnings estimates, shares in most Wall Street firms continue to climb.
Over the past month, shares of Goldman Sachs (GS) have jumped more than 9%. Lehman Brothers (LEH) shares are up more than 10.6%, Morgan Stanley shares are up more than 9.3%, and Merrill Lynch (MER) is up over 11.4%. The Amex Securities Broker Dealer Index, an average measure of the performance of brokerage stocks, is up nearly 10%.
"The stock tends to move with the markets and interest rate changes, more than it moves with earnings fundamentals," says Dick Bove, a Punk Zeigel analyst, commenting in a recent research report on shares of Lehman. "Therefore, even though the earnings outlook may have deteriorated, the market may not care."Bank stocks are often thought of as a safe investment, particularly when the Federal Reserve is keeping interest rates stable or paring them back. In theory, any pause by the Fed in raising interest rates should be good for banks, because it might lead to a widening of the gap between short- and long-term interest rates. But some say that conventional wisdom may not play out this year. Some worry that after the much-anticipated pause, the next move by the Fed could be to start reducing rates -- an event that could be a harbinger of economic weakness.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV