over 3 years ago • 2 mins
More professional investors than ever think that bank stocks are undervalued compared to the tech sector – but one of two things needs to happen before they’ll flock back into financial shares ✌️
Bank of America’s regular survey of investment managers this week revealed that 80% now believe Big Tech in the US is the “most crowded trade” – the largest majority of respondents on record. The investment that the pros think is the most undervalued relative to tech? Bank stocks – again by a record majority.
The KBW Bank Index of 24 big American financial stocks remains down 32% in 2020, even as the broader US market has gained ground – thanks largely to Big Tech’s outperformance, given that just five such companies represent 23% of the market-value-weighted S&P 500. Besides a rise in loan defaults, low interest rates intended to keep America borrowing and spending are squeezing banks’ profits European-style.
Warren Buffett’s Berkshire Hathaway investment company (itself the sixth-largest US-listed stock) accordingly trimmed most of its bank stakes last month. The sole exception was the particularly “cheap” Bank of America – but with financial stocks in general increasingly lagging the overall market, others could yet come to be seen as bargains… 🤔
Some think the scale of bank stocks’ selloff is overdone. Not only are their finances in better shape than during previous crises, but the coronavirus shock is unlikely to lead to two straight years of declining profits, as was the case in 2008. Even dividends should remain largely stable in the near term.
Nevertheless, large institutional investors appear reluctant to buy back into bank stocks – despite the fact they may represent a good-value way to bet on a burgeoning economic recovery. That reticence could well remain the case until US interest rates rise again – something Bank of America’s surveyed investors think is unlikely to happen until either a coronavirus vaccine is found (perhaps early next year) or inflation spikes significantly 🎈
Finimizers interested in getting in ahead of the game can track US banks’ share prices via the Invesco KBW Bank ETF. The fact that the pros think tech stocks look so relatively overvalued suggests, indeed, that such small-scale “retail” investors may have more power to move markets than previously thought…
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