US banking stocks fell to all-time lows against the S&P 500 Index

US banking stocks fell to all-time lows against the S&P 500 Index

Stay informed with free updates

US banking stocks fell to all-time lows compared to the S&P 500, as demand for big-name technology stocks and the fallout from the March banking crisis dampened investors.

The relative performance of the S&P 500 banking index compared to the broader index is at its weakest levels since bank-specific measurement began in 1989.

This year, the industry impact from the failure of Silicon Valley Bank and other small lenders has offset any upside from higher interest rates. It also shows how banks failed to recover what they lost in the wake of the 2008 financial crisis when waves of new regulation hurt returns that had already been squeezed by overly loose monetary policy.

Lenders now face more regulation under so-called Basel III capital rules, which JPMorgan Chairman Jamie Dimon warned in September risked making bank stocks uninvestable.

“Do (regulators) want banks to become investable again?” Dimon said of the proposed rules at an industry conference. “I’m not going to be a big buyer of banks. . . “I will never be better at the same weight.”

So far this year, the S&P Bank Index is down about 12 percent, while the S&P 500 is up more than 13 percent. The regional back stock index lost nearly a quarter of its value.

Line graph of bank performance compared to the S&P 500 index showing the poor performance of US banks

Higher interest rates are usually good for banks, allowing them to increase profits by widening the spread between what they charge for loans and their borrowing costs.

But the speed of rising interest rates since early last year has so far done more harm to the bonds held on their balance sheets than any benefit from higher lending income.

However, strategists at Bank of America said any improvement in the relative performance of the banking index could signal a broader shift in investor thinking.

“Banks finance roughly 35 to 40 percent of the U.S. economy (but) see their valuations trading at a very significant discount to the broad stock market, which is the most concentrated since the dot-com bubble,” Elias said. Gallo, strategist at Bank of America.

The bank expects a long-term shift in investor preferences, from their current appetite for technology and growth stocks to a new focus on value investing and increased interest in banks, energy stocks and commodities.

He added: “Because we believe that this is an inflationary cycle driven by profound secular transformations in society, we believe that the next step in the markets will witness a shift.” “Banks will benefit after the next recession.”

Using a precursor to the Standard & Poor’s Banking Index, Bank of America calculated that banks’ relatively poor performance was the worst since the measure began in 1941.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *