Safe haven bond buying in Treasury notes has been bringing bond prices up, but conversely, yields down and that doesn’t bode well for bank profits, according to CNBC’s “Mad Money” host Jim Cramer. The coronavirus outbreak put a speed bump in front of U.S. markets, which have been on a run to start 2020, but have hit this latest roadblock.
Furthermore, fears of a global economic slowdown could spur more bond purchases and thus, even lower yields.
“Worries about a worldwide slowdown mean people will buy [U.S.] Treasurys, and when people buy Treasurys, interest rates go down,” the “Mad Money” host said. “Lower long-term rates translate to lower earnings for the banks, which is why they’ve been coming down so hard.”
Banks rely on interest rates for profits and naturally, the higher, the better. Cramer feels other sectors in finance won’t feel the burn as much, such as financial technology.
“Financial technology companies that rely on volume could be cut, but I’m not as worried about these,” Cramer said. “You’d need a lockdown like they have in China to shut down retail, although I can see plenty of people just staying home and, yes, ordering from Amazon.”
Developments in China will be closely watched as a government-mandated shutdown could put the economy in a world of hurt.
“I also think that the risk of a slowdown based on a decline in expected profits isn’t fully baked in yet if China ends up doing a full shutdown of their economy by telling people to stay away from work or just stay at home,” Cramer said. “That could be very bad for business, even if it might be necessary to stop this virus.”
Fintech’s Growing ETF Options
ETFs to look at in the growing fintech space include the Global X FinTech ETF (NasdaqGM: FINX) and the ARK Fintech Innovation ETF (NYSEArca: ARKF). ARKF invests in equity securities of companies that ARK believes are shifting financial services and economic transactions to technology infrastructure platforms, ultimately revolutionizing financial services by creating simplicity and accessibility while driving down costs.
FINX seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Fintech Thematic Index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that provide financial technology products and services, including companies involved in mobile payments, peer-to-peer (P2P) and marketplace lending, financial analytics software and alternative currencies, as defined by the index provider.
For more market trends, visit ETF Trends.