With the Fed continuing to take us into a rising interest rate cycle, you’d be forgiven for thinking that banks would be one of the better-performing sectors this year, but that’s not the case. One of the bigger financial ETFs, SPDR Financial (NYSEARCA: XLF), is down about 20% right now from its January levels. And that’s including a recent rally that’s taken it up from the 52-week lows it hit in July.
It seems that red hot inflation and the worsening consumer sentiment are proving too much of a problem for long banks. Even so, there is still an opportunity to be had with the broader sector ETFs having put in a low two months ago. Bank stocks may head north for the last quarter of the year. Three of them are worth looking at.
MarketBeat.com - MarketBeat Bank of America is the first thing we will look at. Their shares are up 15% since July and are currently showing some sideways action. After a multi-month slide that saw them drop from the $50 mark they were trading at in February, consolidation was necessary. Management felt confident enough to increase their dividend by 5% despite their most recent earnings report missing analyst expectations.
One of the strongest signals that a company can give to the market is this, and investors who are interested in picking up some exposure to the financial sector would do well to take notice. Reducing or canceling a dividends can be very dangerous. We can deduce that they're gaining confidence in the company's ability to keep growing because they're confident in the company's ability to maintain this newPayout into the foreseeable future.
It is reasonable to think that shares are trading at a discount since they are down 30% from their all time high.
Bank of America has a market cap that is 25% larger than that of JP Morgan. In recent weeks, the selling has run out of steam and the shares are mostly sideways. There is a lot to like about them at the moment.
Since July, the stock has put in a series of higher highs and higher lows, a technical set up that is usually indicative of a rally being formed. The stock's relative strength index is going up. The latter indicator just had a bullish crossing and is moving in a positive direction.
Peter Richardson at Berenberg upgraded his rating on JP Morgan from Sell to Hold. He made the point that a lot of the downside risk to the bank was already priced into the stock market, and that was because of the temporary headwinds such as reduced banking activity. Confirmation that the headwinds are dissipating would push shares up and out of the consolidation pattern.
Goldman Sachs is the best performing stock in this article. Since the start of the year, Bank of America and JP Morgan shares are down 22% and 25%, respectively, but Goldman shares are down just 15%. They were at one point up a full 30% from the lows of July.
Goldman is one of the better-diversified banks on Wall Street. They deliver more than $11 billion of revenue on a quarterly basis, which beats the consensus at the last count, because they have multiple revenue- generating sectors.
Their shares have performed better than most of the sector this year because they are not exposed to the same fluctuations. Goldman is a good option for people who are hesitant to buy any stocks that are down more than 20% this year.
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