![]() ![]() The flip side is, trading is actually doing better than I think most people have thought because some of this volatility has helped drive some activity there. Because on one hand, investment banking is very challenged and equity markets as of right now are down slightly on a quarter. So we're doing some early work on firms like Goldman Sachs and Morgan Stanley heading into earnings.Īnd the reality is that numbers are probably in a pretty good spot. And that's the backdrop.īut what I would say is that the actual business models are very resilient and have a lot of natural hedges. It's a big tough environment to invest into. There's a lot of, I would say, very smart people that have very differing opinions around what the market backdrop and the economy is going to look like over the next 12 to 18 months.Īnd so that's a tough environment to strategically make big moves into. But I think from everybody's perspective, there's a lot of uncertainty. So they have more visibility than we do from the outside. What do you expect the tone or the tenor of the big bank executives to be as they're going to be essentially setting the tone for the rest of earnings season perhaps?ĭEVIN RYAN: Yeah. And then two weeks after that, we're going to start to get some bank earnings rolling in. Devin, we're only about one week away from the beginning of the fourth quarter of 2022. So I think people need to keep cool heads in a tough backdrop. But at the same time, we do think you need to work through a little bit of this negativity in the market and also just get to a better consensus around where the economy is going.īut longer term here, there are going to be opportunities. And financials on a PE basis, on forward PE, are trading at about 60% of the S&P 500. And so that's kind of our view that there might be some more downside here.īut you've already priced in a pretty negative outlook. Generally, in a recessionary backdrop, that's about where they go. They're already down, for the most part, on the big bank side, 25% to 30% from their highs. So this isn't the beginning of the sell off. And we think they will.Īnd then the second point is where we're already pricing these stocks. And we think that will happen here again once financial markets stabilize. But earnings power actually goes up in a higher rate environment. You have to work through some of the near-term uncertainty. But I would maybe take a step back and just talk about what is happening longer term with these business models and also where are they trading from a valuation perspective.Īnd so our view is that, over the long-term, higher rates will be positive. And no doubt, there's some negative news and uncertainty in the market. When people are nervous, financials are not really a defensive area.Īnd so you're seeing that play through, I think, in the stocks right now. When people feel good about the economy, financials tend to do well. ![]() And so, financials are really, I think, at the center of the economic outlook. So I think right now the whole market is focused on the macro outlook, what's going to happen with the economy as a result of tighter financial conditions and higher interest rates.Īnd so that's creating a lot of gyrations through not just equities but all risk assets and all market prices. But on the other hand, if it's coming with a recession, maybe not.ĭEVIN RYAN: Exactly. Because yes, rates going higher, traditionally seen as a good thing. So give us the big picture here as we look at what's going on with financials. Devin, it's always good to catch up with you. In other words, there's a lot going on when it comes to the financials.ĭevin Ryan is with us now, director of fintech research at JMP Securities, a Citizens company. On the flip side, fintechs seeing a- brokerages really, seeing a reprieve in the SEC's decision not to ban payment for order flow. Banks this week were taken to task during a Senate Banking Committee hearing over their use of Zelle and their co-ownership of that service. ![]()
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