Stock Analysts: Banks, Housing May Get Hit as Conservatives’ Profiles Rise

The loss of Gary Cohn as a stabilizing force in the White House administration and the rise of protectionist hawks poses a risk to U.S. bank stocks and other equities tied to the housing market, analysts say. Strategists are assessing who may replace Cohn as Donald Trump’s top economic adviser and who else may depart, as well as the potential for policy changes that may hurt lenders, affect interest rates and housing trends, and lead to a more hard-line approach in trade talks. The KBW Bank index has gained 50 percent since Trump’s 2016 election victory on tax cuts and prospects for lighter regulation, both championed by Cohn. The index fell 0.5 percent in early Wednesday trading, with Cohn’s former employer Goldman Sachs Group Inc. sinking as much as 1.8 percent. Bank of America Corp. lost 1.7 percent, and JPMorgan Chase & Co. fell 1.6 percent. Cowen, Chris Krueger and Jaret Seiberg Cohn’s departure means “Wall Street just lost its security blanket,” Krueger writes. Cowen can’t think of anyone who can fill the NEC seat who’d give “Wall Street as much comfort as Cohn -- particularly with the protectionists on the rise and tariffs top of the agenda.” Krueger also flags a “recruitment deficit,” as “incredibly high-profile and prestigious finance jobs” are unfilled. Seiberg flags short-term worries focused on trade, which may affect the economy, and longer-term fear that more conservative influence in the West Wing may mean policies that will hurt the biggest banks, such as reinstating Glass-Steagall and increasing leverage capital requirements. A trade war might influence demand for Treasuries and affect interest rates, or trigger a recession, “which is always negative for housing and financials."  Seiberg sees Larry Kudlow as the lead replacement candidate; other candidates may include Vice President Mike Pence’s economist Mark Calabria, Rep. Jeb Hensarling, Continue Reading

Interest rates are going up again this year

Interest rates are going up again this year By Taylor Tepper, January 8, 2018 Updated: January 8, 2018 11:25am Photo: John Davenport /San Antonio Express-News Image 1of/2 CaptionClose Image 1 of 2 Home construction taking place Thursday April 14, 2016 at the Valencia Hills subdivision off of Bulverde Road north of Loop 1604. Interest rates on mortgages, credit cards and personal loans will continue to slowly rise in 2018, as the economy moves on from the 2007-09 recession and the Federal Reserve implements more normal policies. less Home construction taking place Thursday April 14, 2016 at the Valencia Hills subdivision off of Bulverde Road north of Loop 1604. Interest rates on mortgages, credit cards and personal loans will continue to ... more Photo: John Davenport /San Antonio Express-News Image 2 of 2 A view of construction on The District Lofts at 1606 N. Hackberry St. Monday Oct. 16, 2017. Interest rates on mortgages, credit cards and personal loans will continue to slowly rise in 2018, as the economy moves on from the 2007-09 recession and the Federal Reserve implements more normal policies. less A view of construction on The District Lofts at 1606 N. Hackberry St. Monday Oct. 16, 2017. Interest rates on mortgages, credit cards and personal loans will continue to slowly rise in 2018, as the economy ... more Photo: Edward A. Ornelas /San Antonio Express-News Interest rates are going up again this year 1 / 2 Back to Gallery Life will probably get more expensive for borrowers in 2018. Interest rates on mortgages, credit cards and personal loans will continue to slowly rise in 2018, as the economy moves on from the 2007-09 recession and the Federal Reserve implements more normal policies. Most Popular 1 Why Continue Reading

The two big bullish catalysts for biotech stocks

The SPDR S&P Biotech ETF ( Erin Gibbs, a portfolio manager with S&P Global, points out that "the average stock in the XBI is trading at 21 percent below its [average] analyst target price. The average stock is rated a buy." Meanwhile, biotech valuations "are just starting to recover," she wrote to CNBC on Friday, while the forward price-earnings ratio for the S&P 500 as a whole "has remained at the top of a 3 year range." In other words, biotech valuations may have more upside than broad-market valuations. Of course, valuations are low for a reason. Gibbs also pointed out that "biotech is expected to have earnings contract -3.3 percent in 2017 and then recover to 6.6 percent [earnings per share] growth in 2018." "Not exactly stellar growth, and well below the broader market. But at least the stocks are relatively cheaper even with the recent appreciation," she added. All in all, Gibbs says that thanks to low valuations and high price targets, biotech stocks have "room to appreciate further," even if they are not "a strong buy." BK Asset Management's Boris Schlossberg, however, is quite cautious on the space in the short term. "At this point, some pause is kind of due," he said Friday on CNBC's "Trading Nation." The XBI chart is "coming up against a very long-term resistance" at the ETF's mid-2015 intraday high of $91.11, Schlossberg said. On Friday, the XBI slipped slightly to close at $88.32. Continue Reading

Battleground stock: Why valuing Tesla proves a divisive puzzle

Bernstein analyst Toni Sacconaghi reiterated his market perform rating and $265 price target on Wednesday, explaining that "we worry about whether Tesla can successfully build the mass-market Model 3: (1) with good gross margins, (2) with good quality, and (3) on time." He also pointed out that Tesla "appears to be the largest public company in history to have never generated either positive annual cash flow or positive annual profit." It might sound a little odd that Sacconaghi pairs a neutral rating on the stock with a price target that implies a 24 percent decline from Wednesday's opening price. But it is important to note the broader context, which is that Tesla is a notable volatile and highly speculative name that leaves analysts sharply divided. Just 29 percent of research analysts rate the stock a buy or the equivalent, according to FactSet data; 33 percent rate it hold and 38 percent say sell. Target prices published in the last three months on the now-$348 stock are as low as $170 and as high as $464. That $170 figure comes from Cowen analyst Jeffrey Osborne, who actually increased his target from $155 in an Aug. 3 research note. Indeed, the metaphor-mixing title of that note conveys some of the difficulty of calling Tesla's next move: "Lots of Moving Pieces to Chew On; Reiterate Underperform." Like Sacconaghi, Osborne worries about the Model 3, writing that he and his team "continue to be cautious on the stock, especially as the risk profile shifts from the hype of the Model 3 to execution, or 'production hell' as Elon Musk refers to it." What's most striking about Osborne's Continue Reading

Facebook digital ads figures differ from census data: analyst

By David Ingram and Rama Venkat Raman (Reuters) - Figures Facebook Inc gives advertisers about its potential reach differ from U.S. census data, an investment analyst said on Tuesday, renewing questions about how tech companies verify the value of their digital marketing space. Facebook, Alphabet Inc's Google and other internet companies have faced persistent scrutiny from advertisers about how many people watch ads online and how to measure their views. Facebook's ad-buying website tells advertisers that the world's largest social network has a potential reach of 41 million 18 to 24 year olds in the United States, whereas U.S. census data shows that last year there were 31 million people living in the country between these ages, Brian Wieser, a Pivotal Research Group senior analyst, said in a note. The gap persists for 25 to 34 year olds and is not widely known among ad agency executives, Wieser wrote in the client note, adding that the gap may cause large advertisers to step up demands for third-party measurement services. Wieser, unlike most stock analysts, maintains a "sell" rating on Facebook's shares. Facebook said in a statement that its audience estimates did not match census data, but added that this was by design as ad reach numbers "are designed to estimate how many people in a given area are eligible to see an ad a business might run. They are not designed to match population or census estimates". People on Facebook self-report their ages, so these may also vary from census data. The company also uses location data from mobile devices to estimate its reach, meaning that it counts tourists and other visitors. Some 5.6 million non-residents visited the United States in January, the most recent month for which the U.S. Commerce Department publishes data. Last year, Facebook apologized to advertisers after finding that the average time users spent viewing online ads had been artificially inflated, because it was counting only videos that Continue Reading

Wall Street rings in 2013 with huge stock rally after lawmakers sign fiscal cliff deal, Dow up 308 points

Wall Street rang in 2013 with a massive stock rally after U.S. lawmakers inked an 11th-hour fiscal cliff deal. The Dow posted its second triple-digit gain in a row, hurtling 308 points higher. Both the blue-chip index and the broader S&P 500 posted their biggest one-day gains in more than a year. Lawmakers reached a deal that nixed big tax hikes for many Americans and put off spending cuts that many had feared would send the economy toppling back into recession. "It's definitely relief. We know that at least there is some spirit of compromise coming out of Washington," Michael Mullaney, chief investment officer at Fiduciary Trust, told the Daily News. The Dow climbed 2.4% to end the day at 13,412.55. The S&P 500 surged 2.5% while the Nasdaq Composite jumped 3.1%. Stock indexes in Europe and Asia rallied as well, with a leading British index, the FTSE 100, closing above 6,000 for the first time since July 2011. Despite Wall Street's jubilance, the deal left significant work undone. Washington is already gearing up for a battle over the U.S. debt cap, which could cast a pall over stocks, analysts said. Ratings agency Moody's said that the latest steps were not enough to pull the U.S. back from the brink of losing its top-notch triple-A credit rating. Moody's gave the U.S. a negative outlook after lawmakers' wrangling over the debt ceiling in 2011 nearly caused the U.S. to default. [email protected] With News Wire Services Join the Conversation: Continue Reading

Why most banks do not want to hire analysts with a reputation for being bearish

If you run a major financial institution, you probably do not like Mike Mayo, a bank analyst at Credit Agricole. (Full disclosure: My wife is also an analyst there.) Mayo, who has written a new book, “Exile on Wall Street,” has been warning about the risks in the banking sector for years. In 2008, before the financial crisis hit, Mayo raised red flags about the accounting at banks. He has been right a lot more than he has been wrong. Mayo is also one of the few analysts on Wall Street to have a large number of “sell” recommendations. Even today, with all the so-called reforms, the percentages of “sell” and “underweight” ratings are 3% and 1%, respectively, while the percentages of “buy” and “overweight” ratings are 45% and 9%, respectively. Since the S&P has been essentially flat for the past 10 years, logic would indicate that the percentage of bullish ratings and bearish ratings should be close to even. Yet bullish ratings still outnumber bearish ratings by 10 to 1. Why are there so few “sell” or even “underweight” ratings? Companies do not like analysts who criticize them, because it hurts the price of their stock, the net worth of management and their ability to raise capital. To keep analysts in line, companies will often grant favors, such as going on road shows or appearing at conferences with the analysts who are the most bullish, while restricting or even denying access to analysts who are bearish. It is difficult for analysts to do their jobs if they cannot meet with senior management or ask questions on conference calls, so many take the path of least resistance and trade higher ratings for access, while others refuse to cover companies blocking them. This process of favoring bullish analysts helps silence critics and contributes to the rampant ratings inflation on Wall Street. Most institutional investors also do not like “sell” ratings. When Continue Reading

Bankrupt Lehman Brothers’ stock analysts named Wall Street’s smartest

Lehman Brothers Holdings Inc. may have failed, but its analysts still keep on winning. The now-bankrupt investment bank, whose U.S. assets are owned by Barclays Capital, was home to Wall Street's smartest stock- market analysts for a sixth year, Institutional Investor magazine said Friday. Lehman's fixed-income research outshone all rivals since 2000, the magazine's annual money-manager survey showed. RELATED: LEHMAN HONCHOS HIT WITH SUBPOENASWhile the analysts couldn't prevent the demise of their own firm, their success helps explain why Barclays was eager to pick up Lehman's U.S. trading and investment-banking unit. About half of Lehman's 100 equity analysts ranked among the best on the magazine's All-America Research Team. "It's nice that Barclays saw the value in Lehman and kept that alive," said Peter Sorrentino, who helps manage $6.7 billion at Huntington Asset Advisors in Cincinnati. "They did some groundbreaking work." RELATED: AIG AGREES TO CUT GOLDEN PARACHUTEThe magazine said analysts who changed firms after July 18 were identified in the survey for the work they did at their prior organizations. An exception was made for those who worked at Lehman prior to the Barclays acquisition, announced on Sept. 17, the magazine said. Barclays spokesman Seth Martin declined to comment. Absent under the new regime is Ravi Mattu, the head of Lehman's research department, who left the firm after the sale to Barclays. Mattu, 55, said prior to his exit that Lehman employed 250 fixed-income and 100 equity analysts in the U.S. JPMorgan Chase & Co. held the No. 2 spot in the magazine's survey with 38 top-rated analysts. Merrill Lynch & Co. moved up two spots from last year to third place with 36, the magazine said Friday. Citigroup Inc. dropped one spot from last year to fourth. UBS AG was fifth. The magazine culled responses from more than 3,000 investors and money managers at 830 institutions that manage about $12.7 trillion in U.S. equities. Continue Reading

Guilty plea in leaking rating tips

A former client manager at UBS pleaded guilty to insider-trading on Wednesday, admitting he helped two hedge fund traders earn $17.5 million by leaking them secret tips about planned changes in the firm's analyst ratings.Mitchel Guttenberg, who worked in UBS' equity research department in Manhattan, told Federal Judge Deborah Batts he gave tips about hundreds of imminent stock upgrades or downgrades to the two men.Guttenberg, who faces as much as eight years in prison, was paid hundreds of thousands of dollars. He is scheduled to be sentenced on June 2.Guttenberg, 42, was one of 13 people arrested last March in what authorities said were some of the biggest insider-trading cases on Wall Street since the 1980s.Eleven had pleaded guilty before Wednesday.The various insider schemes stretched over five years and included employees at UBS, Bear Stearns, Morgan Stanley and Bank of America. Join the Conversation: Continue Reading

Wall Street analysts urged to take more critical view

Wall Street analysts are rarely willing to bet against corporate America, but one big firm is trying to tone down views that there's too much bull on Wall Street.Analysts give only about 5% of stocks "sell" ratings, according to Bloomberg. That's about half what it was five years ago when criticism over tainted stock research hit a fever pitch.Merrill Lynch plans to try to temper its analysts' optimism with new rules.As part of a broad overhaul of its ratings system, the nation's biggest broker will require that analysts give at least 20% of stocks its lowest rating of "underperform." Shares with that label are expected to be the laggards in a given category over a 12-month period, whether they rise or fall. The change will help the ratings system more closely match stocks' performance over time since, on average over the past decade, 35% to 40% of stocks have fallen each year, said Candace Browning, president of Merrill Lynch Global Research."It's all part of an ongoing process to improve the quality of the research," she said.Merrill currently rates about 12% of the stocks it follows in the category of "sell."Starting June 2, the firm's analysts won't be able to rate more than 70% of stocks in a given sector as "buy," and no more than 30% can get a rating of "neutral."The biggest U.S. brokerages are still struggling to rebuild their credibility since the Internet boom imploded and the stock market tanked.In 2003, Merrill and nine other big Wall Street firms finalized a deal to pay a collective $1.4 billion to settle charges that they wrote glowing research reports to drum up lucrative investment banking [email protected] Join the Conversation: Continue Reading