Consumer Confidence Slips, Market Tumbles from Uncertainty

A second straight day of falling economic metrics gives way to a second straight day of losses for the markets. Fresh off the heels of Monday's Housing report, in which housing sales fell to a 5 year low, came this morning's Consumer Confidence metrics. The Consumer Confidence Index fell from previous month high levels of 111 to around 105 and further economic fears clouded American Markets.

Federal Reserve minutes came out also and pulled markets down further as talk centralized on the possibility of the housing slump being more prolonged than initially thought. Investors took this sentiment from the Fed as a sign to head for the door leaving the Majors (Dow, Nasdaq and S&P) down across the board about 2%.

Will this mean that the Fed will need to provide the market with the needed September interest rate cut? Investors seem to be hoping that the rate cut will come and the markets will more than likely continue in this drifting pattern till the interest rate policy is known. The Financials led the sell off today as earnings estimates are being trimmed left and right for the Investment Banks and Major Financials. Goldman Sachs (GS), Morgan Stanley (MS), Bear Stearns (BSC) and Merrill Lynch (MER) all were sold off substantially today with Lehman Brothers (LEH) being the biggest victim of the selling. Citigroup (C), Bank of America (BAC) and Wachovia (WB) were also sold heavily showing that the dip in the financial sector was widespread.

The selling was broad across North American markets with all sectors seeing red. The Fed revealed that it had hoped the market would, in essence, fix itself but that clearly has not been the case. Now although the American economy is still in good shape, to create market stability here the Fed has really no choice but to interject again and produce an Interest Rate cut soon.

Money Holders: The Bank Story

All this excitement over the sustained tech rally combined with the lingering negative sentiment from the sub-prime mortgage meltdown has given the Bankers a bad rap.
Year to date the major bank stocks in America are either flat or down, all this while the market rallies longer and later in the year than usual.
And banks are typically very solid dividend plays, so what gives with the lack of respect?

It's clear that once this sub-prime fiasco is put to bed the industry can lift itself from the under performing rug and enjoy the spoils that investors have bestowed on seemingly the rest of the market. Earnings announcements are coming this week from JP Morgan Chase (JPM), Merrill Lynch (MER), Banc Of America (BAC) 4.5% yield, Citigroup (C) 4.1% yield, and Wachovia (WB) 4.3% yield

The chance to get in on these major banks is now as the forward P/E's of BAC, C and WB are below or right at the magic 10 multiple.

On the Canadian side of the market, the banks have performed very well over the last 6-8 months, however these gains are being put under pressure due to raised interest rates on inflation fears, the continuing strength of the Canadian Dollar, and simple valuations. However as these Canadian banks have come off their highs, buying opportunities are available.
CIBC (CM) hit a 52-week high of $107, while now sitting at $98
Royal Bank (RY) hit a 52-week high of $61, now sits at under $58
Similar patterns can be seen for Bank Of Montreal (BMO), TD Bank (TD) and Bank of Nova Scotia (BNS), although the latter 2 have not fallen off their highs as much as their peers.

This industry is lying in the weeds and it seems ready to join the party in the coming months. And while the waiting game is on, it's always a good thing to cash in on those +4% yields.

Disclosure: Author is long BAC, C, WB, RY