Banking Stocks Slide: Where to Invest Instead

September 12, 2024 at 08:15 AM EDT

Businessman finger touching screen on smartphone with stock market graph at night.

Traders and investors know that every news event or new piece of information can spark an idea or create an opportunity to profit in this game. Today, as the S&P 500 deals with uncertainty about Federal Reserve rate cuts and election uncertainty, price action seems to be the most important indicator for participants, something investors need to watch closely.

One of the known leading industries in the market is the financial sector, particularly the biggest banking stocks covering both the corporate and business cycle and the commercial and personal finance cycle. Goldman Sachs Group Inc. (NYSE: GS) represents the business side, while the commercial and consumer finance corner of the industry is more represented by J.P. Morgan Chase & Co. (NYSE: JPM). Knowing this, price action in each is highly important to understand the cycle.

Recently, both banks have sold off by more than 8% in a single week, meaning that it isn’t just the business cycle but also the consumer cycle that could potentially be in trouble today. While this may act as a warning signal for the market, safety can be found in other names like Alphabet Inc. (NASDAQ: GOOGL) and Waste Management Inc. (NYSE: WM).

Buffett's Perspective Fuels the Bullish Capitulation Momentum

After the most recent 13-F filings were released, investors realized that Warren Buffett had sold out of his Bank of America Co. (NYSE: BAC) position. This added to the bullish capitulation trend surrounding the financial sector based on underlying weakness.

More than that, Goldman Sachs’ CEO David Solomon has quoted that he expects a decline of as big as 10% in the bank’s trading department. Markets hate uncertainty, and the fact in the statement is that no mention was made of the bank’s investment banking and deal-making activity, raising anxiety for potentially worse conditions ahead.

Because of this, an insider and a director sold a few million dollars worth of Goldman Sachs stock as recently as July 2024. When it comes to J.P. Morgan Chase, the stock’s short interest has risen from $3 billion in the first quarter of 2024 to a high of $5.3 billion today, showing further bullish capitulation in the sector.

After the market has digested recent inflation data, the Financial Select Sector SPDR Fund (NYSEARCA: XLF) has underperformed the broader S&P 500 by as much as 3% for the week, a vote of no confidence in how the new data could affect the market moving forward.

Waste Management Stock's Stability Commands a Premium on Wall Street

Safety in Waste Management’s business model is as present in this market as ever. As long as people and businesses live and operate in the United States, waste will be generated and bought by overseas nations for recycling or inventory purposes.

Today, analysts at Goldman Sachs have initiated coverage on this stock with a Strong Buy rating for starters. More than that, those at Jefferies Financial Group placed – and kept – a price target of up to $256 a share, calling for up to 24.5% upside from where the stock trades today.

Knowing that the banking price action could spell bad news, bears decided to withdraw from Waste Management stock, as short interest declined by 16.5% in the past month alone. Replacing the capitulated bears who bailed out of Waste Management stock came institutional buyers.

Ameriprise Financial boosted its holdings in Waste Management stock by 0.3% as of August 2024, bringing its net investment in the company to a 1.1% ownership worth $970 million today.

Wall Street Shrugs Off Recent Volatility in Google Stock

If the low growth potential seems a bit out of the mandate for a few investors, then another safe—yet high growth—opportunity could be had in Alphabet. Recent volatility spikes resulted from a new lawsuit affecting both Google and Apple Inc. (NASDAQ: AAPL).

Remember, markets hate uncertainty; while a trial is uncertain, a settlement is not. Now that the case is settled, markets are sure of the impact and value implications for this stock. Now trading at only 78% of its 52-week high, Google stock becomes a potentially attractive purchase for investors today.

Despite this recent volatility, Wedbush reiterated its "Outperform" rating and price target of $205 a share for Google stock, daring it to deliver a recovery rally as big as 37.5% from where it has fallen to today. Here's where investors can find another pillar of strength in this recovery.

Only days after the stock's selloff, Lazari Capital Management boosted its stake in Google stock by as much as 32.9%, bringing its net investment up to $9.7 million today.

Wall Street investors still forecast up to 13.1% earnings per share (EPS) growth for Google in the next 12 months, meaning that the recent lawsuits have little weight in the future.