'Fast Money' traders discuss banking stocks, market outlook

[00:00:00] Speaker 1: The S&P gaining 0.8% today and closing just six points off its all-time high, hitting more than four months ago. The Nasdaq also just off its best level, up a percent today. And as we are getting ready to close out the month and the quarter, it's been tech and energy leading the charge. But recent moves in one other area really caught our eye today. Bank stocks have quietly been in rally mode since last week's Fed meeting. Goldman Sachs up nearly 10%, hitting a new record today. J.P. Morgan also at an all-time high, so with stress test results coming out tomorrow, earnings season around the corner. What do you make of these market moves, Guy? [00:00:35] Speaker 2: Well, I mean, in terms of the banks, kudos to Tim and Stewart's here, which is great. But, you know, they've been very supportive, very, I think, enthusiastic about the banks. There's been one that I have been, and that is in the form of Citibank, which I think reports in the middle of July, July 15th or so. And you start doing back-of-the-envelope math, and this is what we've been saying for a while. Citi, which closed at 84 and changed today. Tangible book is 91, book value 103. To me, that's where it should be trading, somewhere between the two, compared to a J.P. Morgan, which, if you look at it, tangible book there is $100. J.P. Morgan's trading close to $300. You can do that math. I know I can as well. So J.P. Morgan at three times book, to me, is probably pre-financial crisis levels. Doesn't make sense. Citi at a discount makes a lot of sense. [00:01:20] Speaker 1: What are banks not pricing at this point? It feels like there's a lot that could be the reasons behind the drivers behind this recent rally, Stuart. So what else is there? [00:01:28] Speaker 3: Well, look, I think in terms of risks, it's the economy, you know, for banks. In terms of the positive side, look, you've got the Fed. You had decent earnings. You have CCAR at the end of this week. You have SLR relief. You know, there's just a lot of things sort of stacking up. And especially if you go a little bit down cap, that is a part of the market that folks are very underweight. And we've definitely seen flows through the desk the last week or two into regional banks. And people kind of starting to engage on that level as well. Energy plus banks equals also good for small cap. So I think that's something to keep an eye on as well. [00:01:57] Speaker 4: Really fascinating. And you mentioned we're within a whisper of all time highs. By the way, you got Careless Whisper, I think, is one of your favorite songs. Yeah, I love that song. Whisper or Whisker? No, Careless Whisper. Oh, OK. Tim actually covers it with his band. But I do think banks are part of taking us to the next level. I thought it was going to be today. It's going to be tomorrow. Or it's going to be the next day. Markets are going higher. And banks are in a great environment for that because of the things Stuart said. I think the steepening yield curve is a really big part of that. I just think the fact that banks also – it's all clear in terms of capital markets dynamics. First of all, I think for people that are coming to market, I actually think that there's a lot of momentum and there's a lot of pent-up demand there. I think the banks themselves are giving back more capital. I think a lot of the banks are relatively cheap at a time when people are a little worried about the move. We were doing this market broadening thing before we went into tariff mania. And now that we've come out of it, we've brought tech stocks back to fresh all-time highs. I think the market is looking for some rotation. I think it's a great place to be. I like European money center banks. I think they trade cheaper. They have bigger div yields. And I know people are always worried about the sovereign story in Europe, but the same story happened over there. Their private banks essentially moved all of their bad debt to the sovereigns a long, long time ago. Those are better balance sheets or at least as good as balance sheets as you have here. [00:03:18] Speaker 1: Carter, how do the charts look? Are they strong in the banks? [00:03:22] Speaker 5: Well, we have, you know, as is often the case in many areas of the market and not different in financials and banks in particular, we have a bifurcated market. We know that the BKX index measuring big banks is toying with the prospect of moving to an all-time high just inches away. Whereas, of course, small regional banks, as measured by the KRE ETF, are still some 25 percent below their former all-time high, which goes back to 2021. So a different way to say those exact same things is this, the relative performance or relative strength chart of regional banks to the BKX index today made a 20-year low. [00:04:03] Speaker 1: So you would fade the smaller, the down market cap sort of banks? [00:04:06] Speaker 5: Well, to your question about how do the banks look, right? Yeah. There are ones that are, you mentioned Goldman Sachs making an all-time high, J.P. Morgan also doing that, whereas Wells has the prospect and soon to do that, or the BKX index itself just about to do it. But you're not seeing, of course, in so many other areas, trust banks and, again, regionals and super regionals. [00:04:31] Speaker 1: Right, right. Stuart, you mentioned more people are going to sort of away from the bigger cap to the midsize, the smaller caps. That's sort of a bet on the economy being OK in the end, right? I mean, you have to be OK with where we are economically. [00:04:43] Speaker 3: Yeah, I think it's a bet on, you know, economy kind of staying strong, the deregulatory push, you know, kind of putting its way through. Maybe this administration is a little more open-minded about bank mergers than some others have been. We got some sort of rumors or headlines over the past weekend about potential mergers. So I think it's all those things plus the value story. I mean, this stuff has lagged, and when you get to all-time highs, people tend to look for laggards. [00:05:13] Speaker ?: So I think it's just a bit of a bit of a bit of a gap, and I think it's a bit of a bit of a gap, and I think it's a little bit of a gap, and I think it's a bit of a gap, and I think it's a little bit of a gap, and I think it's a little bit of a gap, and I think it's a little bit of a gap, and I think it's a bit of a gap, and I think it's a little bit of a gap, and I think it's a little bit of a gap.