Banking & Finance

Wall Street Needs to Get Real About Banking and Finance Expectations for 2019

At the start of every year, 24/7 Wall St. issues its views on how the consensus price targets for major stocks in the Dow Jones industrial average and S&P 500 can influence the direction of the stock market that year. There is no secret or major insight in reminding investors and traders that the end of 2018 was extremely volatile and sloppy. It was the worst December for the Dow going all the way back to the Great Depression.

Sometimes analyst forecasting can be quite spot on. Other times, not so much. When 24/7 Wall St. evaluated the 30 Dow components based on their consensus price targets, the result was that the end of 2019, or its peak, would be a Dow 28,000.

Make no mistake: that seemed like a fairy tale target when we compiled all the data on December 31 and January 1. It feels like even more of a fairy tale now that Apple Inc. (NASDAQ: AAPL) dropped a very rare bombshell of a revenue warning for its quarterly sales.

There are many broad sectors that need to be considered for 2019. One of those is undoubtedly the financial sector. After all, throughout history it has been hard for the stock market as a whole to rise if the major banks and financials perform poorly. While this may sound gloomy, it does not assure that the finance stocks will have repeat performances of 2018 in 2019.

Another “no secret” issue is that the major financials performed quite poorly in 2018. And December was not kind there either. What may not be as well known now is that Wall Street just isn’t being fair to the public when it evaluates its own prospects for 2019.

The end result is not going to be fun for some investors. Analysts have to dial down their price targets and expectations for the major financial stocks during January. If thinking that the Dow could rise 20% to 28,000 seems fishy, how realistic does it sound that major banks should have target prices that imply total returns of 20%, 30% or even 50% in 2019?

Before thinking this is a total wipeout for financials in 2019, note that the outcome is not a foregone conclusion. There is a whole year ahead that things can change. And bank stocks could outperform as value investors look for safe earnings and low price-to-earnings and book value metrics. The point here is that Wall Street analysts need to get real about how they value the market’s prospects and their own prospects as a whole during January. The sooner the better.

We have included our year-end reviews for the financials in the Dow first as they were published heading into 2019. An update in the price performance has also been offered there. After those, we have shown a chart and given some basic data on the other major bank and financial stock outlooks for 2019.

American Express: What Will Credit Card Metrics Do in 2019?

American Express Co. (NYSE: AXP) closed out 2018 at $95.32 a share, down 4% from a year earlier. One issue that may have kept pressure on in 2018, outside of the overall plunge in financial stocks, was that Amex shares had gained a surprising 34% in 2017. Gains of that size tend to rob future gains. Amex has a consensus target price of $114.94, with an implied gain of about 20% ahead, or 22% if you include its 1.6% dividend yield.

Warren Buffett and Berkshire Hathaway continue to remain the anchor shareholder for American Express. The company needs to make certain its clients do not see eroding credit metrics with delinquencies and charge-offs in 2019. Oddly enough, the consensus target price is less than 0.4% above Amex’s 52-week high.

Amex shares were trading down another $0.90 at $94.38 midday Thursday, down from the $95.32 year-end price in less than two full trading days. A gain of 20% would mean that Amex would return to its 52-week high, and that would be a gain of more than 100% from its five-year low seen when its woes were present in 2016.