What Happened To Bank Stocks?

Financial sector stocks took a beating in January as investors worried about how banks would cope with falling energy prices and an economic downturn in China.

At the close of 2015, banking stocks were high on investors' buy-lists, as most were expecting the Federal Reserve's interest rate hikes to directly benefit lenders. However, worries about weaker-than-expected economic growth figures have dampened expectations for another rate hike this year, causing many to pull out of the financial sector in favor of safer plays like utilities and telecoms.

Is It Warranted?

In some ways, worries about the financial sector are reasonable. The ongoing decline in energy prices has many concerned about how banks will fare when businesses begin to default on their loans. Big name banks have been keeping oil and gas companies afloat with lines of credit over the past year, but with prices continuing to flounder many see defaults on the horizon.

Related Link: Did Oppenheimer Just Call The Bottom In Bank Stocks?

Bargain Shopping

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Economic trouble is also a concern for traders— some banks like Citigroup Inc C are heavily exposed to emerging markets, a huge risk in the current economic climate. Others worry that defaults from energy firms are only the beginning of a broader credit issue that could threaten other industries as well.

However, there are many analysts who say that even if banks have a difficult year, their current valuations make them a great bargain. Bank of America Corp BAC is trading at less than 60 percent of book value, making it a steal even in the current market conditions. The company's earnings call revealed that the firm could cope with oil prices as low as $30 for the next nine quarters, and the bank appears to be better situated for an economic downturn than many of its peers.

JPMorgan Chase & Co. JPM is another consideration, as the company offers a 3 percent dividend yield and a 5 percent total return of capital. The company has proven resilient in the past year and some analysts say there is no reason to expect anything less this year, according to Barron's.

Posted In: Top StoriesEconomicsFederal ReserveMarketsTrading IdeasGeneralbankingbanksfinancials
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