Bank stocks forecast is looking bright with higher expected rates and strong outlook
Bank stocks forecast: Bank stocks are slowly climbing back up but they still need your help in their recovery: Take their money— in the form of loans.
Investors hoping to take advantage of an economic recovery have turned to bank stocks, but low borrowing demand has kept their revenue down…
The only sector that wants to see rising interest rates
2020’s recession was a tough year for banks. With interest rates at a historical low and bankruptcies at their highest levels since 2009, bank revenue from loans cratered.
A year later, with the economy recovering, here’s why banks are in a good position:
(Potential) rising interest rates… Big banks get nearly half of their revenue from interest on consumer and business loans. Higher interest rates mean greater earnings on those loans.
- While there’s no official plan to adjust interest rates right now, higher rates are expected as soon as 2022/2023.
They hoarded too much cash… When the pandemic hit, banks prepared for the worst and set aside billions of dollars in cash for the anticipated bankruptcies. Even with the huge number of bankruptcies, there were less loan defaults than expected.
Bank stocks forecast: 2021’s comeback kid
After a disaster of a 2020, banks are having a turnaround in 2021 and continuing to set records:
- The sector already has $32b invested in financial stocks this year, breaking the full-year record.
- Three banks set quarterly earnings records in the first quarter — Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC).
The KBW Nasdaq Bank Index (NASDAQ:BANK), an ETF of the 24 largest banking stocks, is up about 30% this year, and experts expect them to keep growing.
- Eric Hageman of Pzena Investment Management thinks bank stocks “are still pretty much as cheap as they have ever been relative to the market”.
- Deutsche Bank analysts said they could rise as much as 50% by 2024.
For investors: The best offense is a good defense
With both analysts and investors expecting banks to increase dividends in the near future, bank stocks could be a smart defensive play for investors who are hoping for growth without taking on too much risk.