Banks are getting pummeled as the yield curve between the 10-year and 2-year Treasury notes holds near the inversion zone.
Bill Baruch, president of Blue Line Futures, says the banking bust could have come too far, too fast.
“We are seeing capitulation. We are seeing the 2-year and 10-year inverting, we’re seeing record low yields in the 30-year right now. Now if this proves to be a capitulation there is going to be opportunity, not only in the Treasury complex but also things like the banks,” Baruch said Wednesday on CNBC’s “Trading Nation. “
The spread between the 2-year and 10-year inverted earlier this week, a development seen as a recession warning sign. A flat or inverted yield curve compresses banks’ profitability — their business model relies on borrowing short and lending for the longer term. A recession would also dampen banking activity.
Baruch sees two stocks that could shoot back up if bond yields rise and investors return to the banks.
“Goldman Sachs is one of them. There’s a nice channel from the December low — a trendline that’s going up and we’re testing near it right now. Just below $195 is the trendline. We’re hitting the 200-day moving average. There is good support there in Goldman Sachs, and I think there’s value here as well if they stay within that defined channel and recover from here, ” said Baruch.
“J.P. Morgan, though it’s been hitting a ceiling, if you squint your eyes there is an inverted head-and-shoulders pattern developing, and that could be a bullish pattern as well, ” said Baruch.
Erin Gibbs, chief investment officer of Gibbs Wealth Management, said she does not believe a near-term recovery is in the making for banks.
“I don’t see this being a capitulation just yet,” Gibbs said Wednesday. “Even if the yield curve gets away from being inverted, we’re still looking at very flat, very tough margins, very tough growth prospects over the next year.”
“Then on top of that, financials are really very much a value play and that we have not seen in the market,” she said. “Even if we’re taking into account the last week and a half, investors are still very growth focused so until you really see value taking the lead, financials aren’t going to be the leaders.”
The 2-year/10-year yield curve was just