Stuck In Neutral

Banks Could Bounce With S&P 500 Stuck In Neutral This Summer

The strategists at Barclays Capital are out with their mid-year outlook Thursday, and the forecast is for a summer stall before the uptrend in the U.S. equity market resumes into the end of 2011.

Barry Knapp, head of U.S. equity strategy, expects the S&P 500 to be range-bound in the 1250-1350 area, with declines to the lower boundary a tactical buying opportunity. Thursday morning, Knapp said a lot of investors have gotten things right on the market, but for the wrong reason.

“The deterioration of in the growth outlook is the theme of the pullback [from the April high],” according to Knapp, who said that many clients he has met with were selling equities not because of growth concerns, but in order to get out ahead of the end of the Federal Reserve’s QE2 program.

Larry Kantor, BarCap’s head of research, said the firm’s theme is “stay the course” after cutting its position on the market to neutral in March. The pressures of uncertainty over Greece’s debt situation – which crushed European stocks Thursday – and the underestimated impact of the Japan tragedy on supply chains, particularly for automakers like Toyota, have certainly been headwinds but should give way to better growth in the back half of 2011.

Though there is upside – BarCap maintains its 1450 year-end target for the S&P – it is limited because the economy is not “fundamentally turning the corner,” Kantor said. While the gains are likely to be contained in the near-term, one group that the firm believes could be poised to gain is the much-maligned financial sector. Knapp sees a chance for a third-quarter move akin to the “ferocious” rally enjoyed by consumer discretionary stocks a year ago when most investors were either underweight or short the sector.

Bank stocks have languished since hitting their highs for the year in February, but the implied return on equity (ROE) in 2011 earnings estimates is just 9%. While the higher capital requirements ahead likely mean the days of ROE at 15%-20% are over, Knapp suggests that 11%-12% is not implausible. If the market comes around to believe that such levels are possible by, say, 2012, bank stocks could trade at 1.5 times book value, he said. Of the four largest U.S. banks, only Wells Fargo is trading above most recent quarter book value at 1.18 times, while Bank of America (0.51), Citigroup (0.68) and JPMorgan Chase (0.94) are all below the mark.

An overcapitalized banking system is certainly preferable to an undercapitalized one,  but Knapp believes the Fed’s economist understand that such a situation is also problematic from a credit creation standpoint and expects the ultimate capital requirements to strike a balance between the harshest of estimates and the loose reins that resulted in overleveraging into the last crisis.

Career stuck in neutral? Check your achilles' heel. | NevadaAppeal.com

Waldroop and Harvard University business professor Timothy Butler have studied bad habits that paralyze employees for almost two decades. Bad habits include never feeling good enough, doing too much, avoiding conflict, lacking a sense of boundaries, letting fear drive you, functioning as emotionally tone deaf and lacking a sense of direction and purpose. These behaviors arise from an individual's genes and from environmental influences, such as family, friends and colleagues.

Stuck in Neutral

Stuck in neutral, business and the politics of human capital investment policy

Stuck in neutral

Stuck in neutral

Stuck in neutral, Canada's engagement in regional and global supply chains