This Whole Sector of the Stock Market Is Starting to Look Cheap
The KBW Nasdaq Bank Index, which tracks large U.S. bank stocks, is down nearly 19% this year. Meanwhile, the S&P 500, a benchmark for the broader stock market, has only fallen by about 15%. I continue to be baffled by this wider sell-off of bank stocks when conditions for banks have improved, their core earnings are trending well, and credit seems extremely healthy. Ultimately, I do not think the broader sell-off of the banking sector is justified, and I believe there is an opportunity in the space. Here's why.
Since the Great Recession, banks have been waiting for higher interest rates. At long last, here they are, in a big way. The Federal Reserve's benchmark overnight lending rate, the federal funds rate, sits between 2.25% and 2.5% and analysts and economists expect it to end the year higher. This has enabled banks to earn more on loans, securities, and cash, especially as loan growth has bounced back, and this revenue is projected to accelerate for the rest of the year. The net interest margins (NIM) of the four major U.S. banks all grew in the second quarter.
Source: Bank earnings materials.
Source Fool.com
