Market to BAC and T; Drop Dead

Or should it be the other way around?

Bank of America (BAC) closed below $5 yesterday during the regular session although traded above the figure after hours. The whole sector was down a lot yesterday; I saw articles blaming Europe and others blaming the new capital requirements. I usually get pushback on this but I will say again that this is not over. The financials will continue to have more shoes drop.

The book value arguments made by Barron’s and others over the last few years have not mattered and will not matter for a while longer. I don’t know how long this will last I just know we are not done yet. By financials I mean the big banks in the US that dominate the Financial Sector SPDR (XLF) and the big European banks although I would note that that our only US financial exposure is an index provider. Not related but I would also continue to avoid Chinese banks which means avoiding most China ETFs.

The other news of the day was AT&T (T) dropping its bid for DT and so presumably having to fork over the $4 billion break up fee. The worst reaction I can recall to an M&A going bad was when the LBO for UAL unraveled in 1989. It caused a 6.1% drop in the S&P 500 on October 13 of that year.

I don’t know whether this news could be that significant (probably not) but it is worth knowing a little market history about this and that deals collapsing can adversely affect the entire market.

The idea that the market volatility would decrease to close out the year as function of towels being thrown in seemed very plausible to me but based on the last couple of hours yesterday’s trading seems to be off the table. Volatility; engage.

As I’ve disclosed in the last few weeks, I’ve been a little more tactical in the portfolio and mentioned doing a little buying if we dip far enough. No trade yet but I do have one penciled out and ready to implement if this current slide continues, I will keep the blog posted.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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