Bearish on Banks

This morning, the newspaper Investor’s Business Daily interviewed me for an upcoming article about how a lot of companies are likely to start cutting their dividends.

In my opinion, we are at the beginning of a new wave of dividend cuts, especially from traditional dividend-paying sectors such as banks and other financial institutions. I really am bearish on banks right now, and for that matter any company that makes a living by loaning money.

The credit market woes we’ve seen during the past nine months aren’t over yet, and I think it is going to take a lot longer for all of the dust to be pounded out of the financial sector’s rug.

Now, the potential for greater pain in financial stocks does not bode well for either dividend investments or the market at large. The chart above of the S&P 500 still indicates that we currently are ensconced in a bear market rally, but if what I think might happen in financials does in fact happen, we are likely to see a big pullback in the S&P 500.

As the market turns and churns, the best approach is a disciplined one. Make sure that if you invest in stocks right now, that you do so with the full awareness that you may be in for a wild ride. Place a stop loss on all of your positions as a preventative measure, and always be willing to get out of the market and wait for a better time to invest.