Small banks rally pauses but may not be over yet

Pandora jumps on CNBC report of sale to Sirius*Dow down 0.1pc, S&P up 0.1pc

its operating earnings growth estimates for banks with assets of $50 billion or lower to 10 per cent from 6 per cent next year, and to 11 per cent from 4 per cent in 2018.

“Earnings revisions, having been negative for many years, are beginning to turn positive, which is a very important step, and they’re turning positive on higher revenues, which is even more important,” said KBW analyst Christopher McGratty. “They don’t look cheap but there’s a justifiable path towards the valuations they’re at.”

The current forward price-toearnings for the S&P small-cap bank index stands at 18.4, well above the sixyear median of 15 and at its highest since April 2011.

McGratty also noted that many analysts will likely update their estimates for 2017 in coming weeks, which would tighten forward P/E multiples.

The S&P 500 and the Nasdaq rose for the first time in three days, supported by gains in technology and health stocks, but Dow slipped after a rally in bank stocks paused.

Major Wall Street indexes have hit a series of record highs over the past three weeks, sparked by Donald Trump’s victory in the US presidential election as investors bet that his policies would be market friendly.

The rally was led by bank and industrial sectors, which are likely to benefit from simpler regulations and higher fiscal spending.

The S&P 500 financial index has risen 13 per cent since the November 8 vote, while industrials rose 7.5 per cent.

In contrast, defensive sectors such as utilities and consumer staples as well as technology stocks have struggled. Health stocks, which surged in the days following the vote, have since shed most of their gains.

However, the S&P 500 technology and healthcare sectors saw a change in fortunes on Friday, giving the broader index its biggest boost.

Financials fell 1.14 per cent, the biggest losers, while industrials were flat.

Goldman Sachs fell for the first time in four days, weighing the most on the Dow, while Bank of America, Citigroup and Wells Fargo were the top drags on the S&P.

“The move in financials is nothing more than people taking some profits after a strong run,” said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.

At 12:30 am ET the Dow Jones industrial average was down 19.94 points, or 0.1 per cent, at 19,171.99.

The S&P 500 was up 2.22 points, or 0.1 per cent, at 2,193.3 and the Nasdaq Composite was up 9.55 points, or 0.18 per cent, at 5,260.66. Eight of the 11 major S&P 500 sectors were higher, led by gains in real estate and utilities.

A report from the US Labour Department showed that employers in private and public sectors hired more people last month than economists had expected, adding to the prospects of an interest rate hike when the Federal Reserve meets in the coming weeks.