The financial sector is the most serious injured one from Brexit. The factor went down more than 8% after the result.
Indeed, since the start of trading on Friday to the time of writing, shares in Citigroup (NYSE:C) are down by 11.3%, shares in Bank of America (NYSE:BAC) are down by 11.6%, Morgan Stanley (NYSE:MS) is off by 12.2% while Goldman Sachs (NYSE:GS) and Wells Fargo (NYSE:WFC) have lost 8% and 5% respectively. JPMorgan (NYSE:JPM) has lost 8.5%. In comparison, the S&P 500 (NYSEARCA: SPY) is down by only 4.3% over the same period.
Actually, it takes just one step to make everything different for the financial sector. Just several hours before the vote began, all the banks passed the stress test from Fed which then result an extra 1% up for the whole market. Investors believe the US economy and FED convinced the market that all big banks were capable of facing the financial problems. However, the Brexit finally came true where all investors sold out the position in the financial sector on the purpose to seek a safer investment.
The Federal Reserve handed out only passing grades in its annual stress test, according to results released on June 23. Of the 33 banks the Fed tested—which included the largest U.S. banks, like Bank of America, Citigroup, and Wells Fargo—as well as some sizable regional banks and the U.S. divisions of large international banks, all were deemed strong enough to weather a severe economic meltdown without any help from the government.
The earning season and FOMC speech are all coming next month.
The Brexit posts threats to the global financial market which again will bring the cutting of interest to the table. According to Morgan Stanley’s estimates, if the Fed cuts overnight rates by 25 basis points, large-cap banks could suffer a 2% to 8% decline in earnings per share – that’s assuming banks offset lower interest rates with expense cuts. If lower interest rates go straight to the bottom line, without being offset, earnings per share could take a hit of 2% to 20%. It seems that the market is already pricing in these earnings declines.
Also attentions are all on the financial sector earnings this time to see whether the financial sectors are well controlled and managed after the collapse of oil price at the beginning of this year.