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From 'new golden age' to 'disturbing,' why analyst Dick Bove says don't buy bank stocks now

  • Outspoken bank analyst Dick Bove argues the second round of bank stress test results won't really matter much.
  • He believes there are factors independent of any stress test results which are hurting the group, and it's because of a key error.

The results from the second round of bank stress tests are hours away, but outspoken bank analyst Dick Bove argues the results won't really matter much.

"If you take a look at the structure of the American bank balance sheet, as a whole or even at the individual banks, it's in phenomenally good shape, Bove, vice president of equity research at Rafferty Capital Markets, said Tuesday on CNBC's "Trading Nation."

But the picture isn't as rosy as you may think. Bove believes there are factors independent of any stress test results which are hurting the group, and it's because of a key error.

"The banks are making a big mistake by returning so much capital to their investors," he said.

Last Thursday, the banks passed the latest round of bank stress tests for the third year in a row. But since that day, the S&P 500 financial index is flat.

Since President Donald Trump was elected, the index is up a solid 21 percent. However, in the last two months, it's lost momentum. The group is up just 1.6 percent.

The recent sluggishness doesn't surprise Bove. He has been advising investors to get out of "treacherous bank stocks" for months.

"There are quite a number of banks that are doing a reasonably good job. But none of them are arguing that they can grow at rates faster than GDP," he said. "None of them are arguing that they have a vision which is five years from now as where they are going to be in the United States and where they are going to be to maintain a consistent rate of growth. That's what's disturbing."

Despite his bearish take on bank stocks, it's important to note that he went very bullish on banks in 2011, saying they were entering a "new golden age." The stocks have nearly doubled since then.

So, is the latest challenge just a blip? Bove is waiting until October to answer that question.

He wants to see if there's an economic revival which would benefit loan volume and push bank stocks higher.

In a special note to "Trading Nation," Bove wrote: "They do not have the internal drivers that would suggest they can outperform the economy on one hand or the stock market on the other. The have become uninspiring yield plays — utilities."

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Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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