At the beginning of the new year, technology stocks in the U.S. stock market fell sharply. The NASDAQ fell 4.53% in the first week, the worst weekly performance since February 2021. At the same time, banking stocks had their best start in more than 10 years.
Last year, US bank stocks had their best annual performance since 2013. Under the influence of the strong tone of the Federal Reserve this week, the rise of bank stocks continued at the beginning of this year.
The KBW bank index, which tracks the 24 largest U.S. banks, rose about 10% this week and is expected to record its best performance in the first five trading days ever. As there are signs that the Fed may start raising interest rates as early as March, US Treasury yields soared, and investors bought bank stocks.
Wally Wallace, an analyst at Raymond James, wrote in the report that rising interest rates and accelerated loan growth are “two catalysts for investors to be more optimistic about bank stocks”.
The minutes of this week’s fed meeting showed that Fed officials discussed the possibility that economic strength and rising inflation may require them to raise interest rates earlier and faster than expected, which further boosted the rise of bank stocks this week.
However, not everyone believes that bank stocks will continue to show a blowout at the beginning of this year. Baird analyst David George said, “investors are scrambling to obtain interest rate exposure, which has led to the excellent performance of some stocks this week, but it is difficult to see how much upward space there is now.” “The internal risk / return ratio of banking stocks is becoming somewhat unattractive,” he added
In any case, this rally will soon face the next major obstacle. Wells Fargo (54.77, 1.14, 2.13%), JPMorgan Chase (167.16, 1.64, 0.99%) and Citigroup will kick off the fourth quarter earnings season next Friday. Although the performance of the three banks is expected to pick up compared with the third quarter, loan growth is expected to remain weak.
Although most analysts believe that banks will fulfill their expectations of accelerated loan growth, the outbreak of Omicron variant virus will test consumer and investment demand.
“Affected by Omicron, loan growth may slow down in the first quarter. However, we expect loan growth to return to an upward track for the rest of 2022,” said David Chiaverini, an analyst at wedbush