$18 billion and $1.1 billion.
Those were the respective amounts investors poured into stocks and exchange-traded funds and removed from U.S. Treasuries in the first week of January. Equities haven't been on the receiving end of affection like this since before the financial crash.
Analysts are wondering whether this remarkable funds-flow data indicates the beginning of a "Great Rotation": a long-anticipated investor movement out of bonds and into stocks. While it's still too early to know for sure -- and a rising tide theoretically lifts all boats -- it's not too early to begin pinpointing some of the banking stocks that might specifically benefit from such a macro trend.
But first, these important messages
Investors rotated out of stocks and into bonds because of the crash. As banks collapsed, credit markets froze, and companies -- if they weren't going out of business entirely -- began to lay employees off, investors began pulling their money out of equities and putting it someplace they thought it would be safer: U.S. Treasury bonds.
In doing this, they acted well within the realm of reason. At the time, U.S. companies looked like the last place in the world any investor would want to be. By March 2009, in fact, the Dow Jones Industrial Average would lose more than half its pre-crisis value.
So for a while, maybe it was safer for investors to have their money in Treasuries, but right now, government-bond yields aren't far from record lows. As of January 22, 10-year Treasuries are yielding just 1.87% . With inflation at around 1.9%, that means government bond investors are keeping pace, at best.
Time to get back in the saddle
But with GDP growth of 3.1% for the third quarter of 2012 , the unemployment rate slowly but (seemingly) surely inching down, and the Dow back up above 13,000 , people are feeling more confident overall. As such, they may be ready to take some chances again, which brings us to three good banking stock bets for the -- ideally -- approaching stock market rush.
1. Goldman Sachs (GS 1.59%)
Over the past year, Goldman's share price is up 33.52%. Not too shabby for a bank that, in the darkest days of the crisis, had to change its status from a pure investment bank to a bank holding company just to stave off a potential run. But the beautiful thing is, Goldman has made the most of its transition into "regular" banking since then.
Last year, it made a minor industry splash by opening up what it called a private "bank within a bank" to cater to its wealthy clients around the world; this was a smart move, given that Wall Street needs to find new ways to make money in the wake of 2010's Dodd-Frank financial reform act and -- most specifically -- the Volcker Rule, which in large part prohibits banks from trading with their own money.
And, unlike for behemoths Bank of America and Citigroup, fourth-quarter 2012 really was something to write home about for Goldman, which reported both soaring profit and revenue. In practically any kind of economy, Goldman always finds a way to make money -- if it didn't, it just wouldn't be Goldman Sachs, now would it?
2. JPMorgan Chase (JPM 1.44%)
JPMorgan is up 23.37% in the past year. So, like Goldman, it has some momentum behind it. Also like its Wall Street brother, JPMorgan had a killer fourth quarter, with net income of $5.7 billion -- up from $3.7 billion a year earlier -- and total revenue of $24.4 billion -- a 10% rise from the previous year.
And while JPMorgan emerged from the crash in far better condition than most, like most Wall Street banks, it's also figuring out how to make money in the post Dodd-Frank world. But unlike some, it's doing a good job at it, with deposits up by 10% in retail and business banking, mortgage originations up by 33%, and record asset-management loan balances.
The superbank has also come back strong from the $6 billion plus loss in the London Whale trading debacle. CEO Jamie Dimon has doubled down on risk ever since the news broke in spring of 2012 -- shaking up top management and even suing the two closest to the botched trade -- Bruno Iksil and Javier Martin-Artajo, respectively the London Whale himself and his immediate supervisor.
JPMorgan, like Goldman, is bank that tends to do well no matter what. And that's a bank worth investing in.
3. Royal Bank of Canada (RY 0.66%)
I wrote about this bank in some depth in a recent column, so I won't go into great detail today, but here's what I like about it -- and the financial context it operates in -- in a nutshell: Like most of the rest of the world, Canada experienced a financial crisis, but nothing like the U.S. did. None of its banks went bankrupt, and economic growth returned more quickly than here, in part at least because its banks are much more heavily regulated than ours.
Whatever it is, something's working up there in Canada. In the past year, RBC's stock price is up more than 14%, and the bank boasts a return on equity of more than 17%. To boot, RBC pays a dividend of 3.9%. As I mentioned last week, it's very easy to get America-focused in the search for well-performing stocks, banks, or otherwise. But maybe this glimpse of what at least one bank is up to north of the border potentially opens up a new avenue of investing thought.
Final Foolish thought
Getting back to the concept of a Great Rotation, again, a rising tide presumably lifts all boats. But I hope these three banks provide a starting point for where in the banking sector to put some of your hard-earned money when -- or if -- the Great Rotation ever occurs.
