Tag - OFG

Small-cap stocks edged lower Monday, unable to sustain an intraday run to fresh five-month highs as longs took profits, record crude oil prices deterred new buyers and tech stocks reversed course. In the end, the Russell 2000 (NYSE:IWM) dipped 2.72, or 0.37%, to 738.45.

Small-caps trailed buying enthusiasm in large caps much of the day, which was a caution sign that the intraday push was on tenuous footing. When tech stocks started to reverse course, recoiling from new highs, it put a chill on buyers in most of the major index products. Within large-cap tech stocks, the spotlight was on SanDisk Corp. (Nasdaq:SNDK), which tumbled about 7.6% amid concerns about the consumer spending outlook.

Crude oil prices continue to be a focal point for stock market traders as the economy teeters on a tightrope of recovery, balancing higher energy and food costs versus the spending habits of strapped consumers. Crude oil prices jumped to a fresh record high this morning and closed at a new all-time peak above $127 dollars a barrel. Gasoline pump prices around the nation have been spiking higher in recent days, and prices in the Chicago metropolitan area moved past $4 dollars a gallon this weekend, an ominous sign heading toward the peak summer driving and vacation season.

This morning’s leading indicators report may have brought a few stray buyers out of the woods, but that release seldom has a dynamic impact on immediate trading decisions as most of the data is considered dated. For instance, today’s leading indicators report was for the April time frame, and although the headline figure . . .

If you have run a value-oriented stock screen lately, chances are the output was populated with bank stocks. Many issues are trading near 52-week (if not multi-year) lows and sporting enticing dividend yields in the 4% to 6% range. The question—always pertinent—is which issues are genuine value plays and which are bait for the dreaded value trap? 

More are probably of the former than of the latter. The “great mortgage meltdown of 2007” has painted banks—particularly those that have ever originated, serviced or bought a mortgage—with the same broad black strokes of the American Home Mortgages (OTCBB: AHMIQ.PK) and New Century Financials (OTCBB: NEWCQ.PK) of the world. (Note: A five-letter stock symbol ending in “Q” is never a good thing.) 

But old-school banks, those that take deposits and make loans, are a different breed. Sure, many have mortgage-loan businesses, but they tend to be conservatively funded, relying more on passbook savings, CDs and checking accounts and less on volatile commercial paper, broker deposits and subordinated debt.   

That’s not to say that the economic paradigm of borrowing at a short-term rate and lending at a longer-term rate isn’t without challenges; it is. Over the past two years, the yield curve has been flat or inverted, making it difficult to profitably borrow short and lend long.

Small banks have been hit particularly hard by the yield curve inversion, for the simple reason of their revenue stream and geography being generally less diversified than their money center brethren.