The Financial Select Sector Index trades at 15.5 times forward earnings. Last year it traded higher. Banks got cheaper. This is the anomaly.
Except it's not an anomaly. It's what happens when something costs less than it used to cost. The price went down. We have a word for this. Several words, actually. Sale. Discount. Markdown. Clearance. But slap the word "anomaly" on it and suddenly Greg from Tampa thinks he's discovered a glitch in the matrix.
Greg will not buy banks at 15.5 times forward earnings. Greg will wait until they trade at 18 times forward earnings, then buy them, then tell his brother-in-law about the opportunity. Greg's brother-in-law will buy at 19.5 times. They will both check their accounts daily. They will both lose money. Greg will blame Jerome Powell.
The article says bank earnings approach. They do this every quarter. Earnings approach, then arrive, then pass. It's called a calendar. Banks report results four times per year. They have done this for decades. This is not new information. This is not actionable intelligence. This is a f*cking schedule.
But frame it next to a valuation that decreased and retail convinces itself something meaningful happened. A turn and a quarter cheaper sounds significant until you remember that multiples compress and expand based on rates, credit cycles, and whatever panic sold clicks that week. None of which show up on a chart Greg can draw a triangle on.
The real anomaly is that anyone thinks this matters before the actual earnings print. Forward estimates are analyst guesses dressed up in Excel formatting. They're wrong half the time and revised the other half. Basing a trade on them is like betting on a horse because you like its name.
Greg likes the name.
Photo by Oren Elbaz on Unsplash
Leave a Comment