$JPM, $MS, $BAC, $WFC, $C
Y 2018 was a tough year for big US bank stocks, and they may be in for a lift if upcoming earnings releases show strong Q-4 loan growth helps to offset weak trading revenue.
Some bargain hunters are also betting on stronger Y 2019 growth than current valuations imply.
The S&P 500 bank index fell 18.4% in Y 2018 compared with a 6.2% fall for the broader S&P 500 as investors fled banks on concerns about slowing economic growth, weakening credit, a flattening yield curve and bets the Fed would slow down interest rate hikes.
Some investors are wary of the sector, which was at the epicenter of the last economic downturn, others believe that the sell-off went too far.
Others are encouraged by a pickup in loan growth data in Q-4 and expect banks to report improving net interest margins.
With the valuations they’re trading at, we see banks as an extremely attractive buying opportunity. Bank stocks were acting like the economy in the US was going into a near term recession. We here at HeffX-LTN disagreed and continue to.
S&P 500 banks currently trade around 9X forward estimates, below the long-term median of 11.6 and the long-term average of 12.7, according to data from Refinitiv. There’s a lot of earnings growth potential in the sector.
On Friday the S&P bank sector was up 0.2% Vs a 0.2% declineer for the benchmark index.
The Q-4 corporate reporting season will kick off with results from Citigroup Inc on Monday, 14 January, followed by JPMorgan Chase & Co and Wells Fargo & Co the next day.
Wall Street expects 25.5% Q-4 earnings growth for S&P 500 banks and 27.4% for Y 2018, according to IBES data from Refinitiv which show bank earnings growing at 10.7% in Y 2019.
According to our data, US bank loans grew 4.7% Y-Y in Q-4 compared with 3.2% a year ago, while commercial and industrial loans grew 9.2% in Q-4 compared with 2.6% in the year-ago Quarter.
Many bank investors worry that bank credit costs will rise as the current economic expansion ages and as economic growth slows.
The sector was hammered by uncertainty about how much further the Fed will raise interest rates and how its hiking path will affect net interest margins and loan growth. While higher rates tend to boost bank margins, they could also cap loan demand as borrowing gets more expensive.
Have a terrific weekend