Trader Talk

Pisani: Wells Fargo Upgrades US Banks


With the Dow nearing 11,000 — despite a slip Tuesday morning — time to reflect on the amazing run this year: after a mid-January dip, the Dow crossed 10,000 in the first week of February and has moved up 10 percent in 7 weeks.

April has started off well, already up 1.1 percent for the Dow. Remember, April is the still the best month for the Dow Industrials, up an average 2 percent since 1950, though there is often a dip right after the tax deadline ends.


Banking and housing stocks have seen dramatic moves this year, and are the subject of two interesting analyst calls this morning.

1) Wells Fargo upgrading the U.S. banking sector to Market Weight from Underweight. They cite "increasingly positive economic data, greater clarity on asset-quality trends, less fear of pending regulatory changes, and still-reasonable valuation for most of our coverage compared to "normalized" multiples."

This, despite the fact that banks have notably outperformed the market so far this year, the KBW Bank Index (BKX) up 25 percent while the S&P 500 is up 6.5 percent. Some regional bank names have done even better.

The market is now clearly expecting 1) improvement in non-performing assets, and 2) improvement in loan demand.

2) Speaking of outperforming: homebuilders another group that has outperformed dramatically, up 12 percent this year. Today Credit Suisse downgrades KB Home and NVR : "We are shifting to a neutral stance on the builders, as we think that much of the "spring trade" has played out and we expect a slowing in housing demand after the April 30th expiration of the homebuyer tax credit."

Separately, Stifel Nicolaus initiated coverage of homebuilder Pulte Homes with a Sell rating, based on valuation.

3) Massey Energy falls 6 percent a large explosion killed at least 25 coal miners in West Virginia. The accident was the worst U.S. mining accident in 26 years.

4) AMR reported higher passenger traffic in March, particularly on international flights. Overseas flights saw a 3.9 percent rise in traffic compared to just a 1.8 percent rise in domestic traffic. Additionally, while the airline flew fuller planes on its U.S. routes, the load factor (percentage of seats filled) on its international routes also jumped 5.3 percentage points.

Weaker domestic traffic hurt US Airways' March traffic too, which fell 0.1 percent systemwide last month. The carrier, which has a greater concentration of routes in the U.S. saw its domestic traffic fall 3 percent. However, one good sign: revenue per available seat mile rose 18 percent from a year ago.

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