You Just Got the Green Light to Start Buying This Sector

If you’ve been waiting to buy financial stocks, you’ve just been given the all-clear by the Fed…

Last week, the U.S. Federal Reserve announced the results of its annual bank “stress test.” And it gave the entire sector a “clean bill of health.”

This is the second round of good news banks have received in the past three months.

Back in March, I told you that the 50 largest hedge funds in America had bought more financials than any other sector. Here’s what I wrote on March 15

As a whole, the brightest investors in the world own far more financials than any other sector. Seeing funds load up on a sector is a good omen.

The passing grade on the stress test is the second “good omen”…

Now that banks have been given the all-clear by the Fed, they’ll be able to buy back more stock and increase their dividend payouts.

Share repurchases reduce the number of shares outstanding, which raises the market value of the remaining shares.

And those dividend raises will put increased streams of income in your pocket.

Regular readers know I’m bullish on financials. And in a moment, I’ll explain why this news (along with two other trends) will push bank stocks higher.

But first, let me show you why this stress test was so important…

Making the Grade

In the wake of the 2007–09 financial crisis, Congress passed the Dodd-Frank Act. It was signed into law by President Obama in 2010.

The law requires banks to improve their accountability and transparency. Among other things, it also seeks to protect taxpayers by ending bank bailouts.

A major part of the law is an annual stress test for financial institutions with more than $50 billion in assets.

Basically, the stress test measures if banks have enough capital, management controls, and other necessary safeguards to survive various worst-case scenarios.

Last week, the Fed released results of the 2017 stress test. It was the first time that all 34 banks passed.

As I said, that’s bullish for investors.

The last time the Fed gave banks the all-clear was in June 2016. In the two months following the results, financials shot up 9% (see chart below).

We expect to see similar returns this time. Especially with the good omens lining up for banks…

More Good Signs for Banks

As I said above, banks were waiting for the test results. Before they could announce any share buybacks or dividend increases, they needed the Fed to give them the all-clear.

The Fed announced the test results on June 27. A day later:

  • JPMorgan announced it would buy back $19.4 billion worth of its stock. And increase its dividend by 12%.

  • Bank of America announced it’s buying back $12 billion of its stock.

  • Citigroup announced it’s buying back $15.6 billion of its stock. And it’s doubling its dividend.

And those are just the biggest ones.

Almost every bank that passed the stress test announced additional buybacks and dividend increases.

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Along with the passing stress test grade and hedge fund buying spree, there are a couple of other tailwinds behind banks I’ve been following:

These trends will provide support for banks’ stock prices.

We now have several reasons to buy financials. If you already own financials, continue to hang on. This run is just getting started.


Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. The easiest way to go long financials is to buy the Financial Select Sector SPDR ETF (XLF).


Legalize It: South Korea is the latest country with plans to adopt bitcoin. The country’s ruling party is working on a bill that will lay out regulations for using the cryptocurrency. The move is a turnaround for South Korea. As recently as June, legalization seemed uncertain. We’re not surprised, though. Per CryptoCoinsNews, South Korea is among the world’s largest bitcoin trading markets, accounting for nearly 8.5% of the world’s traded bitcoins this year. We expect more countries to follow suit.

Number of Bitcoin Users Surges: Coinbase says it’s added more than 1 million users from May to June. Coinbase is the country’s largest bitcoin exchange. And it’s attracting millions of new customers to the crypto market. This exponential growth is a very bullish sign for bitcoin and the cryptocurrency space.

Navy Goes Hi-Tech: The U.S. Navy is experimenting with two new technologies: 3D printing and the blockchain. The Naval Innovation Advisory Council says it will conduct a trial that uses the blockchain to create a data-sharing layer between the service’s 3D printing sites. The Navy says the merger of the blockchain and 3D printing is “a perfect match.” We’re not sure what to make of this yet… But we’ll add the military to the growing list of industries jumping on the blockchain bandwagon.

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From Blake M.: I really hate these clickbait emails that say there is a major health issue and asks you to “click here” for more information. I buy plenty from your group and know this is business… But it’s insulting and a waste of my time. So you may unsubscribe me and several of my friends will follow suit.

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From Marcel P.: My concern is about the mission statement of Palm Beach Confidential. I thought it was a service for buying small-cap stocks. Instead, it has turned into the “cryptocurrency letter” with very little mention of anything else. It’s nice to see Teeka Tiwari’s enthusiasm… but I simply have no desire to pursue this type of investment. So I feel that I was unintentionally sold a bill of goods.

Nick’s Reply: Hi, Marcel, and thank you for your note. There’s a reason Teeka and his team are recommending cryptocurrency plays: They’re making a killing. The worst performer is up 59.8% and the best performer is up 6,601.2%. We’d be crazy to not go where the money is.

That being said, on last check, the PBC portfolio contained seven small-cap stocks. Of those seven, five are still actionable. Confidential subscribers can check the portfolio here.

From Mick O.: Dear Teeka… THANK YOU greatly for the research and very hard work you and your staff are doing in Palm Beach Confidential. I’m extremely excited with the prospects.

My wife and I fully discussed your “crypto” speculations and decided to only invest $500 in your long-term positions and $200 in the short-term trades. Just wanted you to know some of us are listening AND know the long-term horizon is VERY bright… with patience. Keep up the good work.

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Since its founding, America has weathered plenty of changes and come out the other side. But there is a new crisis brewing. And this one is different…

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