Bull Market Continues To Present Opportunity
Let’s face it, banks are having a not so great year in comparison to where the street expected them to be by this time. It wasn’t that long ago when banks and bank stocks were seen as a niche that could be a huge beneficiary of deregulation and higher rates. But as Donald Trump continues to push his economic agenda, the Federal Reserve is straying away from any overly hawkish opinions on rates and that’s not great for banks (right now).
The general lack in excitement can be seen in share prices of some of these larger banks. The majority of the index of the biggest banks has returned less than 6% of about half of what the benchmark for the S&P 500 has returned. Therefore, with confidence wavering about inflation some see that there could be enormous opportunity to take advantage of these conditions.
Take Goldman Sachs, for instance. The bank is forecasting faster inflation than the market is expecting and they also think that the Fed will tighten things up sooner than anticipated. “While portfolio managers are focused on the macro story, we believe micro tailwinds present an underappreciated opportunity for investors,” a group of Goldman analysts led chief US equity strategist David Kostin wrote in a client note. “We recommend an overweight despite recent underperformance.”
Some see the opportunity for banks to come in the form of buybacks. Bank of America has already made their announcement and others may soon follow. This could, in turn, boost earnings for some of these banks in addition to returns on equity and ultimately share prices.
Goldman expresses that buybacks could yield more influence on the market than they have in the past. On top of all of this, Goldman has also calculated that firms in the financial sector are trading at roughly a 0.5 standard deviation below 10-year average relative valuations, which could make this one of the most “attractively-valued S&P 500 sectors.”
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