” Prepare, don’t predict.” A market technical analyst
Many investors are concerned about lower bank earnings but they might be fooled by accounting and not reality. Bank earnings are significantly lower this year than for the same period last year. Bank stocks, as you would expect are down in sympathy with the lower earnings. But much of the change is caused by increase accounting provisions for potential loan losses. In other words, the banks are preparing for a recession but not predicting one. Even if the economy does go into a recession later this year or next year the banks will have reported the lower income due to their provisioning so far this year. Do you buy the banks or wait, that is the question.
What are we doing? We continue to like dividend paying stocks, especially those with a history of increasing their dividends. We have neither sold or purchased banks in the past few months. Their earnings are lower but they increased their dividends. The income you earn on a new purchase grew in dollar terms and percentage. A lower stock price makes the yield on the stock higher in percentage terms. We are likely to add to the banks but we might wait until there is greater clarity before adding. I would rather pay more and know the risks are much less. We have not changed our approach.
