Investor confidence in economic growth remains strong as the financial fundamentals continue to support robust outlook, Gondor Capital Management Portfolio Manager Vincent Au commented.
Au, who heads the New York-based hedge fund management firm said he disagrees with the assessment of some financial analysts that the drop in financials sector in a falling-interest-rate environment is an indication of "lacking vote of confidence about economic growth.
“I do not believe so,” Au stated and added, “I believe confidence in economic growth is strong.”
He also dismissed speculations that the 9 percent drop in financials, comprised of an array of financial services including banks and insurance companies, is a sign of the health of the global economy.
He said, “I disagree. I think it’s more of a reflection of the constant rotation and last month banks were out of favor… That might change this month. While certain banks are expensive, I also believe they are worth a look on a pullback.”
Since March this year, the sector lost 9 percent as at the start of June, erasing all of its gains this year and is the third-worst-performing sector (just ahead of the telecommunications and energy sectors), with some strategist painting a gloomy picture of the health of the economy.
Others have recommended that investors should conduct a "sit-and-wait" on the financials, noting the uncertainties over the possibility of deregulation and ‘reflation trade’ under the current Trump administration. Investors have been placing bets on the prospect of continued economic growth, balance sheet normalization, global reflation, deregulation, and interest rate after the U.S. election.
Au said he expects the financials to rebound in the next month. “Interest rates and the Federal Reserve's view on future increases will be a big factor,” he stated.
Already, financials are starting to show some light as blue chips lead the stock market comeback in the second week of June. Both the S&P 500 and Dow Jones industrial average jumped 0.4%, during the period while the NASDAQ rose 0.3%.
Amongst the top performers in the financial components of the S&P 500 were retail broker E-TRADE Financial (NASDAQ:ETFC) jumping 2.6% and super regional bank Comerica (NYSE:CMA) climbing 2.3%. Also showing strong moves chip designer Advanced Micro Devices (NASDAQ:AMD), 3.3%, and DISH Network (NASDAQ:DISH), which gained 1.9%.
In the Dow industrials, Goldman Sachs (NYSE:GS) and JPMorgan (NYSE:JPM) outperformed.
Investors also raised their bets in banks, lenders and other financial companies as they anticipate an increase ahead of the Federal Reserve meeting this month. Traders and analysts are predicting a 25 basis points increase in interest rates from the Federal Reserve which could boost many of the big banks.
In the meantime, Au said he is maintaining a long-biased approach on financials. Gondor Capital has exposures in JPMorgan Chase (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), Bank of America (NYSE:BAC), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks Inc (NYSE:STI), BB&T Corporation (NYSE:BBT), MetLife, Inc. (NYSE:MET), American International Group, Inc. (NYSE:AIG), CME Group Inc. (NASDAQ:CME), and Capital One Financial Corporation (NYSE:COF).