Low Rates May Send Bank Stocks Even Lower
Michael Kramer | Oct 16, 2020 09:41AM ET
This article was written exclusively for Investing.com
Since the middle of June, the banks have traded sideways, and that trend is not likely to change anytime soon. With inflation rates down and the Fed's pledge to keep interest rates low for the next few years, it seems that the banks could struggle. The low-interest-rate environment is likely to keep a lid on the bank's ability to generate extra revenue from net interest income.
Coupled with quarterly results and forward guidance, which appeared mixed at best, stocks like Wells Fargo, Bank of America, and Citigroup have fallen sharply. Even JPMorgan noted that net interest income would decline in the fourth quarter, partially offset by non-interest revenue. Meanwhile, Citigroup's stock has also struggled. Now it is clinging to a level of technical support around $42.30. A drop below support would send the shares lower to about $39.25.
Bank of America/h2
Finally, Bank of America (NYSE:BAC) does not seem to be in any better shape with a stock struggling below resistance at $26.25. Like the others, it faces a steeper loss if it cannot stabilize and stay above support at $23. A decline below that support price could result in the stock falling to around $21.30.
It may be a while before the group comes back to life, as the recent economic struggles from the coronavirus pandemic are keeping a lid on economic growth. With recovery still underway, it seems unclear as to when the market will begin to favor this group again.
Overall, in the absence of a revenue and earnings recovery, banks may only benefit should investors begin to focus on the future of the business and give the stock’s higher multiples. After all, the rest of the stock market has seen a tremendous amount of multiple expansion in 2020, why not the banks too.
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