Magazine article American Banker

Bank Stocks Seen Poised to End Cycle of Selloffs

Magazine article American Banker

Bank Stocks Seen Poised to End Cycle of Selloffs

Article excerpt

Bank stocks may actually rally after the current earnings reporting period is over, breaking last year's selloff cycle, according to a usually bearish observer.

"I'd say a little more trading upside for the banks may well be likely this month," said Stephen Berman of Natwest Securities Corp.

Indeed, the pattern of the prior three quarters -- in which banks ran up strongly before earnings and then sold oft -- may already be gone, he said.

"The rally off the November lows of the previous selloff was not up to par," he pointed out Friday.

A weak bond market was partly responsible for that, he said, but long-term rates may have peaked for now and bond prices could rally.

Favorable Signs

Moreover, the outlook for banks' earnings is still comparatively good and stocks are cheaper than last year, since price-to-earnings multiples "have been compressed." Mr. Berman added.

However, the analyst thinks investors are still "geared toward reducing bank holdings this year, so that any 10% to 15% rally in share price likely will meet considerable resentment."

"Interest-sensitive stocks are moving out of favor," he said, as the cyclical commercial-industrial stocks enjoy their traditional run during the economy's mid-expansion phase.

"The banking industry, in particular, is viewed as a dinosaur headed for extinction -- although transition is probably a better word -- as its customers find more economical and alternative sources for their credit and savings needs. …

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