Bank stocks have slumped despite continued climb in estimates for earnings
A major driver for bank shares over the coming year will be the Federal Reserve and how it goes about trying to cool inflation, which has surged to its highest level in four decades. The central bank hiked interest rates by 25 basis points in March and traders are currently pricing in more than 200 basis points of additional rate increases this year, including at least three straight half-point bumps.
At Morgan Stanley, strategists downgraded the entire financials sector late in March telling investors to prepare for the possibility of slower U.S. growth.
To be sure, not everyone is counting out a comeback for banking shares.
“While it could take some time to get absolute clarity” on multiple outstanding questions, including if the Fed can engineer a soft landing, “lower stock prices in face of raising earnings estimates and solid profitability metrics, could result in a near-term opportunity,” Barclays analyst Jason Goldberg wrote on April 22.
This article was provided by Bloomberg News.