From earnings results we have seen so far, 2018 was a good year for U.S. banks’ net-interest margins (NIMs), which were buoyed by the Fed’s four rate hikes. Despite this, Financials have under performed Utilities as yields have fallen. More recently, the under performance of Financials has been even greater than what the falling yields would suggest. Investors are pricing in lower yields and a deteriorating outlook for Financials. The timing of this is interesting. Earlier this week, minutes from the Federal Reserve’s March meeting were released, suggesting—somewhat confusingly—that the Fed could be “flexible” in its “patience”. The message is mixed, but it appears that the Fed is trying to convey that rates could rise while they stay accommodative. Investors remain unconvinced and are betting that cyclical conditions continue to deteriorate.
DISCLAIMER: This report was prepared for circulation to institutional and sophisticated investors only and without regard to any individual’s circumstances. This report is not to be construed as a solicitation, an offer, or an investment recommendation to buy, sell or hold any securities. Any returns discussed represent past performance and are not necessarily representative of future returns, which will vary. The opinions, information, estimates and projections, and any other material presented in this report are provided as of this date and are subject to change without notice. Some of the opinions, information, estimates and projections, and other material presented in this report may have been obtained from numerous sources and while we have made reasonable efforts to ensure that the content is reliable, accurate and complete, we have not independently verified the content nor do we make any representation or warranty, express or implied, in respect thereof. We accept no liability for any errors or omissions which may be contained herein and accept no liability whatsoever for any loss arising from any use of or reliance on this report or its contents.
© 2019 Pavilion Global Markets Ltd. All rights reserved. This report may not be reproduced, distributed or copied, in whole or in part, in any form, without the written consent of Pavilion Global Markets. Pavilion Global Markets Ltd. is a CIPF member.