The past week was a big one for the big banks, and the news couldn’t have been worse. Here’s how Fortune covered the highlights … or lowlights if you prefer:
- Goldman’s $5 billion settlement: Goldman Sachs Finally Admits it Defrauded Investors During the Financial Crisis
- Regulators reject the banks’ living wills: ‘Too Big to Fail’ Banks Fail Regulatory Test on ‘Living Wills’
- Political backlash: Elizabeth Warren Just Unleashed a Tweetstorm Against the Banks
- Bank bashing at the Democratic debate: Watch Hillary Clinton and Bernie Sanders Argue Over Big Banks
- Increased reserves for bad energy loans: Here’s Why Weak Oil Prices Won’t Put J.P. Morgan and Wells Fargo on Empty
- Europe is still a mess: Italy’s “Last Resort’ Bank Bailout Fails to Calm Investors’ Fears
- Europe is still a mess, part 2: Eight Former U.S. Treasury Secretaries Have Warned The U.K. Against Brexit
Add in first-quarter earnings that have widely been described as “lousy,” “lackluster,” and “disappointing,” and it’s hard to imagine a worse string of headlines for the sector. And yet, bank stocks overall rose during the past week while J.P. Morgan (JPM), Bank of America (BAC), and Goldman Sachs (GS) have outperformed the S&P 500 in the past month. Goldman Sachs (GS) capped the pattern—rising Tuesday after reporting first-quarter revenue that was the weakest in Lloyd Blankfein’s 10-year tenure as CEO, according to Bloomberg. Goldman shares rallied almost 3% on Wednesday.
There’s an old saying on Wall Street: “It’s not the news that matters. It’s how the market reacts to the news that matters.” What the past week tells you is that a lot of the bad news was priced into the banks.
Yes, arguably the quarterly results were not as bad as feared, thanks largely to the financial market’s remarkable turnaround after a dismal start to 2016. Now think back to the start of last week, when all the headlines were about the “gloomy” outlook for bank earnings and how dire the sector was looking. The banks’ resulting performance is another reminder that when sentiment swings fully to one side—either positive or negative—the smart move is typically to take the other side of the trade, as I tweeted on April 11: