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US bank stocks fall to all-time low against S&P 500

Nature

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U.S. bank stocks fell to an all-time low against the blue-chip S&P 500 index as demand for big tech stocks and the fallout from March’s banking crisis deterred investors.

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

This year, the impact on the industry from the bankruptcy of Silicon Valley Bank and other small lenders has more than offset any rise in interest rates. It also shows how banks have failed to regain lost ground after the 2008 financial crisis, when waves of new regulations hit returns already squeezed by extremely accommodative monetary policy.

Lenders now also face new regulations under so-called Basel III capital rules, which JPMorgan boss Jamie Dimon warned in September risked making bank stocks impossible to sell. invest.

“Do (regulators) want banks to be able to invest again? » Dimon spoke about the proposed rules at an industry conference. “I wouldn’t be a big buyer of banks. . . I would be no better than equal weight.

Year to date, the S&P Banks Index is down about 12 percent, while the benchmark S&P 500 is up more than 13 percent. An index of regional back stocks has lost almost a quarter of its value.

Line chart of bank performance against the S&P 500 showing the underperformance of US banks

Rising interest rates are generally helpful to banks because they allow them to increase their profits by widening the margin between what they charge for loans and their own borrowing costs.

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

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

“Banks finance about 35 to 40 percent of the U.S. economy (but they) see their valuations trading at a very steep discount to the stock market as a whole, which is the most concentrated since the dot-com bubble,” Elyas said. Galou, strategist at BofA.

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

“Because we believe this is an inflationary cycle driven by profound secular changes in society, we believe the next move in markets will be one of transition,” he added. “Banks will benefit from the next recession. »

Using a precursor to the S&P banking index, BofA calculated that banks’ relative underperformance was the worst since the measure began in 1941.

Nature

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