As Loan Growth Slows, Major U.S. Banks Fall Into Correction Territory

Three of the four "too big to fail" money-center banks -- Bank of America (BAC) , JP Morgan (JPM) and Wells Fargo (WFC)  -- are in correction territory between 12.8% and 14.8% below their post-election highs set as March began. Citigroup (C) has been the best performing bigger bank, only 3.4% below its post-election high set on May 26. Even so, Bank of America and Citigroup are in bull market territory vs. their post-election lows set on Nov. 8.

Four of the five super regional banks, BB&T Corp (BBT) , PNC Financial (PNC) , SunTrust (STI) and U.S. Bancorp (USB) , are in correction territory between 10% and 16.5% below their post-election highs set on March 1. M&T Bank (MTB) is 9.9% below its post-election high set on March 1. M&T Bank and PNC Financial are also in bull-market territory vs. their post-election lows set on Nov. 8.

According to the Federal Deposit Insurance Corporation, loan growth slowed during the fourth quarter of 2016 and the first quarter of 2017. Most analysts on Wall Street expected the pending softening of Dodd-Frank lending standards to allow banks to increase lending, but that has not happened. This anticipation had the big banks as the strongest segment in the stock market until they stalled as March began.

In early-March, I covered the FDIC data in the Quarterly Banking Profile for the fourth quarter of 2016 and my theme then was that these stocks had rallied too far, too fast, and that proved to be the case. The FDIC Quarterly Banking Profile for the first quarter of 2017 reflects continued concerns, as shown in my story covering this data, published on June 1.

Over on Real Money, Jim Cramer gives advice to investors looking at how to play the Trump Trade. Get his insights or analysis with a free trial subscription to Real Money.

Scorecard for the Nine Biggest Regional Banks
Scorecard for the Nine Biggest Regional Banks

Bank of America is 34.1% above its post-election low and is 13.1% below its March 2 high.

Citigroup is 23.6% above its post-election low and is just 3.4% below its May 25 high.

JP Morgan is 18.6% above its post-election low and is 12.6% below its March 1 high.

Wells Fargo is 14% above its post-election low and is 14.8% below its March 1 high.

BB&T Corp is 7.6% above its post-election low and is 16.5% below its March 1 high.

M&T Bank is 26.8% above its post-election low and is 9.9% below its March 1 high.

PNC Financial is 24.6% above its post-election low and is 10% below its March 1 high.

SunTrust is 17.3% above its post-election low and is 13.5% below its March 1 high.

U.S. Bancorp is 14.1% above its post-election low and is 10.1% below its March 1 high.

When looking at the weekly charts below, keep an eye on the 200-week simple moving averages, shown in green, considered the "reversion to the mean" for each stock. The "reversion to the mean" is an investment theory that the price of an index, will eventually return to a longer-term simple moving average. A logical choice that's easy to track is the 200-week simple moving average. A ticker trading above its 200-week simple moving average will eventually decline back to it on weakness. Similarly, a ticker trading below its 200-week simple moving average will eventually rebound to it on strength.

Record High Household Debt Is a Huge Problem for Banks
Record High Household Debt Is a Huge Problem for Banks

Courtesy of New York Fed Consumer Credit Panel

Household debt rose by 1.2% in the first quarter sequentially to $12.73 trillion, exceeding the third quarter of 2008 high of $12.68 trillion. Household debt is 14.1% above its cycle low set in the second quarter of 2013.

According to the New York Fed Consumer Credit Panel, mortgage debt totals $8.63 trillion, with $1.985 trillion on the books of our nation's banks as shown in FDIC data.

Balances on home equity lines of credit, known as HELOCs declined by $17 billion is now at $456 billion according to the New York Fed. HELOCs have declined for every quarter since the end of 2007 according to FDIC data and ended the first quarter at $430 billion. With higher home prices since March 12, its difficult to understand why banks have not increased along with the re-inflated housing price bubble.

Auto loans, credit card and student loans are also on the rise. I have not focused on auto loans, but industry sources show that banks are starting to down shift in issuing car loans, which is a $1.2 trillion market. Wells Fargo and JP Morgan have been the biggest banks in this loan category.

The House Price Bubble Continues to Re-Inflate
The House Price Bubble Continues to Re-Inflate

Case-Shiller 20-City Composite

The Case-Shiller 20-City Composite rose by 5.9% year over year in March, up 0.9% sequentially. From its mid-2006 peak, the 20-City Index declined by 35.1%, bottoming in March 2012. The index is up 45.7% since then and its just 5.4% below the peak.

Bank of America (BAC)
Bank of America (BAC)

Courtesy of MetaStock Xenith

The weekly chart for Bank of America is negative with the stock below its key weekly moving average of $23.21 and above its 200-week simple moving average of $16.80, which is the "reversion to the mean." The weekly momentum reading is projected to decline to 31.08 this week. Buy Bank of America on weakness to my quarterly value level of $20.42. My semiannual pivot is $22.39. Sell strength to my monthly risky level of $24.70.

Citigroup (C)
Citigroup (C)

Courtesy of MetaStock Xenith

The weekly chart for Citigroup is positive, with the stock above its key weekly moving average of $60.35 and above its 200-week simple moving average of $51.06, which is the "reversion to the mean". The weekly momentum reading is projected to rise to 69.60 this week. Buy Citigroup on weakness to my quarterly value level of $52.27. Sell strength to my semiannual risky levels of $64.78.

JP Morgan (JPM)
JP Morgan (JPM)

Courtesy of MetaStock Xenith

The weekly chart for JP Morgan is negative, with the stock below its key weekly moving average of $85.42 and above its 200-week simple moving average of $64.40, which is the "reversion to the mean." The weekly momentum reading is projected to decline to 20.04, approaching the oversold threshold of 20.00. JP Morgan is below my quarterly and annual pivots of $82.68 and $84.24, respectively. Sell strength to my semiannual risky level of $89.26.

Wells Fargo (WFC)
Wells Fargo (WFC)

Courtesy of MetaStock Xenith

The weekly chart for Wells Fargo is negative with the stock below its key weekly moving average of $53.79 and above its 200-week simple moving average of $50.94, which is the "reversion to the mean," and was tested on May 31. The weekly momentum reading is projected to decline to 21.41 this week. Buy Wells Fargo on weakness to my quarterly value level of $49.68. Sell strength to my annual pivot of $55.97.

BB&T Corp (BBT)
BB&T Corp (BBT)

Courtesy of MetaStock Xenith

The weekly chart for BB&T is negative but oversold, with the stock below its key weekly moving average of $43.09 and above its 200-week simple moving average of $38.30, which is the "reversion to the mean." The weekly momentum reading is projected to decline to 11.18 this week, well below the oversold threshold of 20.00. Buy BB&T on weakness to my quarterly value level of $40.29. My annual pivot is $42.32. Sell strength to my semiannual risky level of $50.29.

M&T Bank (MTB)
M&T Bank (MTB)

Courtesy of MetaStock Xenith

The weekly chart for M&T Bank is neutral with the stock below its key weekly moving average of $157.34 and above its 200-week simple moving average of $124.59, which is the "reversion to the mean." Weekly momentum is projected to rise to 41.00. Buy weakness to my quarterly value level of $135.06. My semiannual pivot is $158.21. Sell strength to my annual risky level of $165.89.

PNC Financial (PNC)
PNC Financial (PNC)

Courtesy of MetaStock Xenith

The weekly chart for PNC Financial is negative with the stock below its key weekly moving average of $120.12 and above its 200-week simple moving average of $91.42, which is the "reversion to the mean." Weekly momentum is projected to decline to 32.02 this week. Buy weakness to my annual and quarterly value levels of $112.67 and $105.35, respectively. Sell strength to my semiannual risky level of $127.70.

SunTrust (STI)
SunTrust (STI)

Courtesy of MetaStock Xenith

The weekly chart for SunTrust is negative, with the stock below its key weekly moving average of $55.12 and above its 200-week simple moving average of $42.06, which is the "reversion to the mean." Weekly momentum is projected to decline to 27.64 this week. Buy weakness to my quarterly and annual value levels of $50.13 and $43.15, respectively. Sell strength to my semiannual risky level of $57.65.

U.S. Bancorp (USB)
U.S. Bancorp (USB)

Courtesy of MetaStock Xenith

The weekly chart for U.S. Bancorp is negative with the stock below its key weekly moving average of $51.43 and above its 200-week simple moving average of $43.35, which is the "reversion to the mean." Weekly momentum is projected to decline to 25.44 this week. Buy weakness to my quarterly value levels of $46.39. My annual pivot is $50.37. Sell strength to my semiannual risky level of $55.61.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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