Are Bank Stocks & ETFs "Very Cheap" Or More Pain Looms On?
Zacks Investment Research | Mar 26, 2020 01:00AM ET
Amid the ongoing bear market in Wall Street, bank stocks got more battered than the S&P 500. SPDR S&P Bank (NYSE:KBE) ETF Banking Earnings Mixed, ETFs Gain Moderately ).
Will Fed & U.S. Stimuli Aid Banks?
In such a trying situation, global central banks are coming to the rescue of economies and markets. The Fed cut interest rates this month to zero (for the first time since the 2008 financial crisis) and also started an unlimited QE (read: All-Out Fed Support: Buy Highly-Rated Corporate Bond ETFs ).
The Fed also confirmed that U.S. stimulus worth about $2 trillion . This fat incentive was meant to finance hospitals, businesses and ordinary Americans. This should inject ample liquidity into the U.S. economy and lower the chances of default. “The quantitative easing will support banks’ already strong liquidity,” per Moody’s.
Are Bank Stocks Undervalued?
going back several decades ,” per chief market strategist at Miller Tabak.
From the P/E point of view too, the financial ETFs space is cheap with the highest P/E of 19.60x held by iShares U.S. Financials ETF FTXO has a considerably low P/E of 11.34x. Meanwhile, SPDR S&P 500 ETF (NYSE:SPY) (ASX:SPY) ’s P/E ratio was 19.67x.
Any Cause for Concern?
smaller part of their revenue schedule these days.”
The growing risk of a global recession due to the rising coronavirus fears will likely hurt demand for high-quality loans too, which will cause trouble for the sector.
With cities on quarantine and activities coming to a standstill, demand for loans from household and corporations is likely to drop. The biggest American banks — known for shareholder value maximization — announced Why Bank ETFs May Soar in 2020 ).
ETFs in Focus
To conclude, it is important to note that banks’ cheaper valuation is undeniable. If there is any improvement in the reporting of coronavirus cases and risk-on sentiments, banks are likely to bounce back sharply. Until then, keep close tabs on KBE, Financial Select Sector SPDR ETF (NYSE:XLF) XLF and IYF.
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