I recognize that there is a body of market participants who worship at the altar of price momentum.
Sometimes, however, when traders and investors blindly follow charts from the lower left to the upper right (hat tip Sir Denny Gartman!), those late to the party get burned, as has been the case recently with the biotech sector.
This brings me to the current infatuation with and rotation into money center bank stocks.
contracted and has turned from being a tailwind to being a drag on bank industry profits. Credit quality has been improving for three to four years. Loan-loss provisions have been consistently declining (and reserve releases have expanded), acting as less of a headwind to banking industry profitability in recent years. But the benefit of those non-operating factors is beginning to diminish now and will be less of a tailwind in 2014-2015. Which leaves us to interest rates and the slope of the yield curve. This is the most important profit contributor and should be the most worrisome area for bank investors and bank profits, because it will likely put a limit on any improvement in net interest income (and margins).
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