Last night, JPMorgan Chase & Co. (JPM) announced that it incurred a $2 billion trading loss in the past six weeks and that it could face an additional $1 billion in losses in the second quarter. Ouch!
Derivatives on fixed income are apparently the culprits behind these trading losses. As a result, J.P. Morgan Chase boosted its reserves to cover trading losses to $800 million (it also had a $1+ billion in trading gains), which will undoubtedly squeeze corporate profits and cause analysts to scrutinize other big financial firms that trade derivatives. It appears that these losses are emanating from J.P. Morgan Chase’s London office, so the sudden rise in yields on some eurozone securities and the volatile prices of Credit Default Swaps may be behind these trading losses.
As a result of the questions that flooded my inbox after JPM’s announcement, I made the company today’s Stock of the Day on Facebook. And I also want to take the opportunity to say that although financial stocks look tempting, they currently shouldn’t be touched with a ten-foot pole. Sure, Bank of America (BAC) is up 36% so far this year, Goldman Sachs (GS) is up 13%, and Citigroup (C) and JPMorgan are each up about 11%, but remember that each of these stocks are also down more than 20% from their recent highs in late-March.
I’m a former banking analyst, and I can tell you firsthand that there are still just too many unresolved issues in the industry. In addition, there are such a huge number of bargains out there right now that it’s just not worth your time venturing into the minefield of the financial sector.
The first companies that get scooped up in the current bargain-hunting binge are those with strong buyback programs, as well as those with hefty dividend yields. And, these are two strengths of our Blue Chip Growth Buy List. In fact, our average Blue Chip Growth stock has a 1.8% dividend yield, and we have no less than 30 companies that are buying back $1 billion or more of their stock each year!
Have a great weekend, and I’ll check back in on Monday!