Jerome Powell Just Said the $100 Billion ‘Word’
People are still abuzz about Jerome Powell’s appearance on 60 Minutes.
In my opinion, they’re talking about the Fed Chair for the wrong reasons.
Powell moved the goalposts a little bit on Fed policy. Equity investors are increasingly worried about interest rates. But the CPI data on Tuesday showed less inflation than expected.
Two weeks ahead of the next Fed Open Market Committee meeting, Powell said it was “highly unlikely” his team will raise rates this year.
So, is Powell saying there’s a chance?
According to the CME FedWatch tool – which measures the market’s expectations – the chance of a rate hike by December sits at just 3.9%.
If the economy does heat up – and we’re talking about 6.5% GDP growth or more and a big jump in inflation – a hike makes sense.
But a 1-in-30 chance isn’t worth our time today.
The real news from the interview was the BIG NUMBER: $100 billion…
And his warning could either keep you up at night, or you could profit from it.
The Market’s Most Dangerous Trend
What’s the untold risk that could cause the financial system to melt down again?
That’s right. Powell put cybersecurity in the same sentence as COVID-19 when discussing key “dangers” to the U.S. economy.
According to the International Monetary Fund, cybersecurity could cost global banks $100 billion each year.
“The world evolves, and the risks change as well, and I would say that the risk that we keep our eyes on the most now is cyber risk,” Powell said.
Powell pointed to a variety of dangerous scenarios where large financial firms might lose track of payments. If that happened, Powell said it would grind the system to a halt while markets attempted to unwind those payments.
Cybersecurity isn’t just the biggest threat to the financial sector.
It’s also become the biggest cost.
Banks like JPMorgan (JPM) or Goldman Sachs (GS) have addressed their cybersecurity. They have deep pockets and the ability to hire the top experts.
JPMorgan alone spent $600 million on cybersecurity last year, according to Jamie Dimon.
But the smaller community and regional banks are the ones who are struggling to compete. As a result, cybersecurity represents one of the core drivers of mergers and acquisitions in the banking sector — so pay very close attention.
Not only is there a chance to profit from banks selling themselves, but there is also ever-increasing potential to make real money by owning the best cybersecurity stocks that cater to this industry.
This Cybersecurity Stock Is Now in the Green and Clear
Let’s dig into a pure-play approach to addressing banks and cybersecurity.
It’s hard to ignore Unisys (UIS), a mission-critical IT company with extreme exposure to cyber challenges in the financial sector.
According to a Unisys report, financial institutions may lose as much as $250 million in a single breach. The company’s slogan “Securing Your Tomorrow” is written as if it’s a love letter to bank CEOs.
The digitalization of the banking sector has created an incredible surge in demand among consumers.
You might recall walking up to an ATM or standing in line to speak to someone at the counter. You might even remember those ridiculous pens that hang from a chain and always run out of ink.
Unisys has been at the forefront of the major trend that has occurred during COVID. Banking is now “digital first” and highly customer-centric. Financial institutions need a holistic strategy to protect the multiple touchpoints across the industry — such as phones, tablets, ATMs, in-person banking, and more.
And they must provide the necessary infrastructure for digital workplace transformations, e-lending platforms, mortgage lending and management, and other critical, traditional banking functions.
But the backbone of all of this integration is cybersecurity.
The firm’s Unisys Stealth platform partners with Dell EMC to provide first-class data recovery and customer protection.
The company boasts that its platform is “defense-grade” and uses identity-based segmentation that ensures that only the customer can have access to their critical information.
Finally, Unisys says its cryptographic wrapper tied to Dell’s recovery network makes it nearly impossible for hackers and malware to crack. The firm says that it only permits authorized devices to engage with the bank.
Unisys helps financial institutions worldwide with their IT solutions and counts financial, government, and commercial giants as customers.
In North America, customers include Union Bank & Trust, United Community Bank, Wings Financial, BlueCross North Dakota, Dell Technologies, and multiple state and local universities.
That diverse base of customers combined with the trust factor baked into these relationships caught my attention.
Into the Green Zone
At TradeSmith, we’re looking for real conviction behind a solid trend.
That’s why I was thrilled to see that Unisys is in the Green Zone and remains in a momentum up-trend.
At about $25, the company looks like an attractive stock to consider, given the growing trend around cybersecurity.
The stock has been in our Green Zone since November and could break out in the coming months.