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Bond yields jump, sharply boosting big banks, insurance stocks

Written By | Sep 19, 2018
stock buybacks, Trump is wrong

Is Mr. Moneybags the only dude making money in the stock market these days? (Vintage cartoon by Thomas Nast, public domain image.)

WASHINGTON. Apparently anticipating continued rate hikes by the Fed, bond prices took a heavy hit today. Predictably, bond yields (i.e., effective bond interest rates) got a boost, since yields move inversely to bond prices. That’s the reason why financial stocks – primarily big banks and insurance companies – finally awoke today from their summer slumber. When interest rates go higher, financial companies charging those higher rates to customers — like big banks and insurance companies — get to make more money. Ditto insurance companies, which actually hold more dollars, collectively, than do our largest banks.

Big banks, insurance stocks party hearty

Notes CNBC,

“Bank shares rose as the 10-year Treasury note yield rose to 3.09 percent, its highest level since May. Goldman Sachs, Morgan Stanley and Bank of America all rose nearly 3 percent. Shares of J.P. Morgan Chase and Citigroup, meanwhile, advanced 3.3 percent each.“

That made us happy, because our larger portfolio holds shares of one of the really big banks. That’s New York’s Big Kahuna bank, JP Morgan Chase (trading symbol: JPM). Our position in JPM languished badly in recent weeks. But it took a nice big jump today as the bond action took hold with traders. JPM closed at $117.82 per share, a jump of $3.32 per share over Tuesday’s close, for a gain of nearly 3 percent on the day.

Oil refiners do a face plant

On the other hand, for various reasons having little to do with logic, oil refining stocks got kicked in their metaphorical teeth by Mr. Market. Mid-sized refiner Holly Frontier (HFC), previously positive for us for most of the year, got pole-axed by bearish traders who hit the shares hard pretty much all day. The company, like most refiners, has been doing well all year. Maybe it was just profit taking.

At any rate, HFC closed today at $65.50 per share, off $4.02 per share on the day for a horrible 5.78 percent shellacking. Perhaps the company’s upcoming quarterly report is not looking as happy as analysts have been predicting. That’s something no one is supposed to know ahead of time, but company insiders and their crony capitalist friends often do.

After Holly Frontier’s sickening mauling, which dropped our once-profitable position to a negative 5 percent paper loss, we did the only sensible thing we could do. We bought more shares of HFC and averaged down. Time will tell if this was the smart thing to do.

On the other hand, this is exactly what we did when we built our position in JP Morgan. Over a longer timeline, this unfashionable tactic can work pretty well, as it did for our shares of JPM. Hopefully, it will be the same for HFC. Although it ain’t over ‘til it’s over.

U.S. / China trade spat redux

Stocks also got a boost Wednesday not only from the anticipated interest rate boosts, but from the notion that the latest escalation in the ongoing U.S. / China trade war wasn’t going to be as horrible for stocks – and the price of consumer goods – as was formerly expected. One worry, however: Canada’s socialist government continues to posture on the NAFTA front, even as its economy continues to wither. Great tactic, Justin.

Mr. Market seems happy over all

As far as today’s general market action is concerned, the previously cited CNBC piece delivers the numbers. The report noted that other big banks behaved as positively as JP Morgan Wednesday.

“The Dow Jones Industrial Average closed up 159 points with Goldman Sachs as the best-performing stock in the index. The S&P 500 advanced 0.13 percent as financials jumped nearly 2 percent. The Nasdaq Composite slipped 0.08 percent, however, as Amazon, Netflix and Apple all fell.

“Bank shares rose as the 10-year Treasury note yield rose to 3.09 percent, its highest level since May. Goldman Sachs, Morgan Stanley and Bank of America all rose nearly 3 percent. Shares of J.P. Morgan Chase and Citigroup, meanwhile, advanced 3.3 percent each.”

It’s interesting to note that earlier this year, every time the 10-year bond yield topped 3 percent, even fractionally, market averages took a swan dive. Today, stocks in general, save for our miserable HFC shares and a few other positions, partied hearty. Particularly those big banks and insurance companies like Prudential (PRU). Other big insurance companies also did well today.

The DC Swamp continues to pose headline risk, re: the Kavanaugh Kabuki in the Senate

Meanwhile, back here in The Swamp, unsettling political garbage continued to roil the Federal government. The Democrats’ ham-fisted efforts to screw the Kavanaugh Supreme Court nomination with Clarence Thomas 2.0 tactics were thrown in turmoil. The ridiculous demands and stupid statements issued by the allegedly offended party’s attorney were clearly a ploy to delay the investigation of their charges indefinitely.

What a shame it is that a perfectly decent Supreme Court nominee and his family have to get smeared, slandered and damaged just to make a cadre of partisan hacks happy. This nonsense has tipped off everyone in Washington that the Dems are playing stall-ball – big time – in order to deny Kavanaugh a seat on the Supreme Court. This town has become so disgusting that my wife and I really want to get out of here. Forever. The stink starts to rub off, and it’s hard to take.

However, this nasty kabuki theater production on Capitol Hill is influencing the market to an unknown extent. When things were looking bad for Kavanaugh late last week, stocks, already hit by political and trade fears began to wobble and retreat. Last night’s barrage of news offering ample evidence that the “sexual harassment” charges against Kavanaugh are likely a Democrat-manufactured hoax, seem to have helped give stocks a more positive tone today.

The DC Carnival of Hell is never over, however. So we’ll see where this Supreme Court roller coaster goes over the next few days.

—Headline image. Vintage Thomas Nast cartoon depicting Mr. Moneybags who likely lives inside his bank.
(Out of copyright, public domain.)


Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17