Bank earnings kick off on Friday, and analysts are urging caution ahead of those results.
Today, Citigroup downgraded Goldman Sachs and Comerica to "sell," saying "We view the banks as trading stocks and following the recent run, we don't really see a compelling risk/reward for the group." Regarding Goldman's fabled trading platform, Citi said: "While we expect GS will see improved trading revenues going forward, the path is relatively uncertain and the bar is relatively high."
They're not the only ones worried about bank valuations. Nomura, in a note today on regional banks, said,"[W]e believe share prices already discount the upside for most regional banks" though they highlight KeyCorp, Wells Fargo, Huntington Bancshares, and US Bancorp as possible outperformers.
None of this is surprising, but it is refreshing hearing caution from normally upbeat analysts. Banks were huge outperformers in the fourth quarter: the SPDR Bank ETF, a basket of large banks, was up 30 percent in the fourth quarter and 25 percent since the election.
Here's the problem: banks have moved so fast that there is a risk that we could have a pullback before we move higher. They are already reflecting much of the upside from higher interest rates and the potential for lower corporate taxes and less regulation, as Citi and Nomura have noted.