Wall Street banks can’t stop telling investors to buy shares in Wall Street banks. It’s not been the best advice.
Financial shares have the third-worst performance among 11 S&P 500 Index groups in 2017, and are on track for the poorest year relative to the market since 2011. Yet of the 10 equity strategists surveyed by source, nine give banks and insurers the highest recommendation and only one holds a neutral view.
That’s in stark contrast with their stance on the rest of the market, where market leaders from technology to health-care fetch no more than four buys. Every group other than banks garners at least one sell rating.
There has been no shortage of defensible reasons to be bullish on banks at various times this year. They’re viewed as the biggest beneficiaries of the Trump administration’s promise to loosen regulations and cut taxes, and lenders looked set to rally when the Treasury curve steepened amid tighter monetary policy. It’s just that, so far, none of that has happened.
Call it misplaced love, but prognosticators from Goldman Sachs Group Inc.’s David Kostin to Savita Subramanian of Bank of America Corp. haven’t given up just yet. The rally is coming, they say, and it’s not reliant on the Fed tightening. Donald Trump and Congress will eventually ease regulations and cut taxes. Banks also offer a valuation discount and plan to boost buybacks.
“What the market is getting really wrong right now is the fact that financials are trading in lockstep with the 10-year. It’s insane,” Subramanian said in an interview on Bloomberg Television. “What’s not to love about a sector that’s cheap and is returning cash to shareholders?”
Strategists are not alone in sticking to their optimism. Investors in exchange-traded funds have added $4.3 billion this year to those focused on financial shares, the second-most among sectors tracked by source.
Bulls have gotten some validation this week, with banks jumping 3 percent to the top performance in the S&P 500 Index as it barrels toward 2,500. The rally has been mostly driven by a rebound that lifted 10-year Treasury yields from their 2017 lows. Here is a sampling of other things that strategists say will push bank shares higher.