Why Citigroup, JPMorgan Chase and Goldman Sachs shares are falling today

What happened

Shares of several major banks took a hit today after new data showed inflation continues to rise and may not yet have peaked. the Dow Jones Industrial Average had lost over 650 points as of this writing, while the Nasdaq Composite fell about 3%.

Actions of Citi Group (C -4.52%) traded 4.3% lower at 2:25 pm ET today, shares of JPMorgan Chase (JPM -4.60%) were 4.2% lower, and shares of Goldman Sachs (GS -5.65%) they fell 4.8%.

And that

The US Bureau of Labor Statistics released data for the month of May for its Consumer Price Index (CPI), which closely tracks the prices of daily goods and services and is an indicator of inflation that investors monitor. . The CPI in May was up 8.6% year-over-year, while economists were only expecting an increase of 8.3%.

Person looking at stock chart on computer.

Image source: Getty Images.

Many investors had thought that inflation could be peaking in May after the CPI only rose 8.3% year-over-year in April. With inflation still high, that makes the Federal Reserve’s job of controlling inflation without pushing the economy into a recession that much more difficult. The Federal Reserve is already aggressively raising its benchmark overnight lending rate and has begun the process of reducing its $9 trillion balance sheet.

Sung Won Sohn, a professor at Loyola Marymount University in Los Angeles, was quoted by Reuters as saying: “The Fed now recognizes that it is far behind the inflation curve and must act more decisively. Stagflation is the most likely scenario for the next couple of years, with the probability of a recession rising.

While most banks are expected to benefit from higher interest rates, too much inflation can weigh on consumer and business activity and demand. It can also hurt consumer and business finances and lead to more loan losses.

Now what

While I can see the US economy tipping toward a recession, at this point I don’t think it’s going to be a severe recession, considering the current strength of the US labor and consumer markets, although it certainly could. there will be some deterioration in the future. those two areas.

But at this point, I definitely like these three stocks after the recent selloff in the banking sector this year.

JPMorgan Chase is the largest bank in the US. Not only is the bank expected to benefit from the most prominent rising interest rate environment seen since the Great Recession, but it also now has a very strong trading business that will likely has been booming because of all this market volatility. The bank and its CEO, Jamie Dimon, are battle-tested and have survived and done well in multiple downturns.

Trading at less than eight times earnings, I also find Goldman Sachs an attractive pick at the moment. Not only will its commercial business stand to benefit greatly from volatility, but the bank has been successfully building its consumer banking business to generate longer-lasting and more consistent profits.

Finally, Citigroup trades at the largest discount to its tangible book value, or net worth, of any large U.S. banking stock. The company has struggled for years, but finally appears to have a clear makeover. The bank also got a big boost when Warren Buffett and Berkshire Hathaway invested in the stock this year. While the transformation will not happen overnight, I believe the bank is on the right track.

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