Investors are still trying to key off of which banks can and cannot hike their dividends under Federal Reserve approval. In short, it is the healthy versus the unhealthy. We have stated that investors should not have been keying off this in the first place when it comes to the less-healthy of the money center banks. We have been tracking these reactions against the broad market and even against the triple-leverage ETFs. After looking at the SPDR S&P 500 (NYSE: SPY) against the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) and the Direxion Daily Financial Bull 3X Shares (NYSE: FAS), the dividend argument is really a non-starter.
If you were buying Bank of America Corporation (NYSE: BAC) ahead of the dividend announcement and even looking at this tiny ‘hardly worth noting dividend’ from Citigroup Inc. (NYSE: C), you already had to know that you were buying one or both of the less-healthy money center banks. Wells Fargo & Co. (NYSE: WFC) and J.P. Morgan Chase & Co. (NYSE: JPM) are just far healthier.
The broader S&P ETF via the SPDR S&P 500 (NYSE: SPY) has outperformed even the triple leverage ETFs from Direxion as you will see the chart below:
Sometimes there is news around dividends and sometimes there is just noise. The dividend news was somewhat easy to anticipate as a disappointment for Bank of America because it was not going to as easily be able to get as high of a yield. CEO Brian Moynihan talked up normalized earnings but really kicked the can further down the road. There is still also an overhang due to the potential mortgage put-back fears that investors have. Whether put-backs in securitizations come to the hundreds of millions or the billions is still unknown and that will keep the risk trade there in Bank of America.
JON C. OGG