Bank Shares Rallying, Loans Grow

Bank Shares Rallying, Loans Grow

$BAC, $C, $JPM, $WFC,$FITB, $BKX, $SPY

We do expect US bank shares to continue to outperform after better-than-expected Q-4 earnings and outlooks and their cheap stock prices finally broke a losing streak, thus leading the next leg of this historic Bull Market.

  • The gains will be driven by management teams reiterating their ability to drive operating leverage even in the absence of further interest rate hikes, benign credit across all asset classes, a reversal of weak capital market trends so far this year, and loan growth accelerating into Y 2019, especially given commercial and industrial backlogs
    • Analysts see fees revenue growing 2% in Y 2019 on modest capital markets revenue of +1%, and banks headwinds from marking down wealth and asset management assets during Q-4’s sell-off, comments from Morgan Stanley, Citigroup, JPMorgan and BofA suggest capital markets to act positively this year
  • KBW Bank Index (BKX) has rallied 14% YTD Vs S&P 500 6.5% gainer.
    • BKX dropped more than 18% in Q-4 of Y 2018, its worst Quarter since Y 2011
  • Fifth Third Bancorp (NYSE:FITB) said Q-4 average portfolio loans and leases increased 3% Y-Y, boosted by higher commercial and industrial lending; FITB sees year total loans, leases up 3%-3.5% Y-Y
    • Citizens Financial Group Inc. and Regions Financial Corp. said on 18 January, they expect loan growth will keep growing at low-single-digit percentage rates in Y 2019, after reporting similar growth in Q-4 of Y 2018

Note: as lending grows so grows materials and industrials.

Stay tuned…

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