Is it good to invest in bank stocks?
Bank stocks can be excellent long-term investment opportunities, but they aren't right for all investors. Bank stocks are near the middle of the risk spectrum. They can be recession-prone and are sensitive to interest rate fluctuations, just to name two major risk factors.
Yes, high-quality bank stocks that have sound balance sheets, strong risk management measures and attractive valuations based on fundamental metrics such as P/E ratio, price-to-tangible book value and price-to-book value can be solid long-term investments — particularly during periods in which economic growth is decent ...
If you do have any money in an investment account with a bank, those funds are not covered by FDIC insurance. In fact, bank investment accounts always come with microscopic fine print making that point clear. FDIC insurance doesn't extend to stocks, bonds, mutual funds and other true investment assets.
Banking stocks offer investors the opportunity to generate long-term capital appreciation through growth in the banking sector. The Indian banking sector has been able to outperform most other sectors of the economy over the past few years, but it has also been hit by some major setbacks.
Pros. Bank stocks increase in value during periods of inflation, which makes them appealing to investors. Higher net interest margins: Banks earn money from the difference between the interest rates they charge on loans and the interest rates they pay on deposits.
Analysts see big upside for these undervalued bank stocks. March 12, 2024, at 3:25 p.m. CFRA analyst Kenneth Leon says Citigroup is doing an impressive job with its new strategy, which has positioned the bank to benefit from global growth in corporate and institutional banking.
Deloitte expects bank profitability in 2024 to be tested due to higher funding costs and sluggish revenue growth. Banks with diversified revenue streams and strong cost discipline are likely to boost profitability and market valuation.
Usually, you would choose to invest your money for long-term financial goals like retirement because you have a longer time frame to recover from stock market fluctuations. If the financial goal is short term, say five years or less, it's usually smarter to park your money in a high-yield savings account.
Banking stocks fell despite the Monetary Policy Committee (MPC) assuaging Street's concerns that it will be facilitating liquidity in the system through different liquidity management tools at its disposal.
| Ticker | Company | Performance (1 Year) |
|---|---|---|
| JPM | JPMorgan Chase & Co. | 30.07% |
| WFC | Wells Fargo & Co. | 18.18% |
| C | Citigroup Inc | 7.70% |
| BAC | Bank Of America Corp. | 0.82% |
Do bank stocks do well in a recession?
When economic activity slows down, bank stocks are typically among those hit hardest. That's because banks' earnings are, to varying extents, tied to borrowers' ability to repay their loans, as well as to consumers' and businesses' appetite for more credit.
Bank stocks tend to trade at prices below their book value per share as the prices consider the increased risks from a bank's trading activities.
In a broad sense, a bank's share price is affected by the same forces that affect the share prices of other public companies. Major, abstract factors can impact a bank's share price. These include overall market sentiment, expectations about the future, fundamental valuation, and the demand for banking services.
The expectation right now is that a mix of competing factors will ultimately equate to modest revenue growth in 2024, while profit per share of the ETF is expected to drop just over 4% to $4.67 next year. Analysts expect 2.1% sales growth for the bank ETF.
Stocks of companies in industries such as technology and media which consumers and businesses can postpone spending money on have been among the worst performers during recessions.
The S&P 500 bank index (. SPXBK) , opens new tab, up 4.4% and climbing sharply for a second session in a row, hit its highest level since March 6. This as the KBW Regional Banking index (. KRX) , opens new tab was also rising more than 4%.
| Stock | 2024 performance through Feb. 29 |
|---|---|
| Digital World Acquisition Corp. (DWAC) | 135.2% |
| Nature Wood Group Ltd. (NWGL) | 140.9% |
| Sana Biotechnology Inc. (SANA) | 146.1% |
| Super Micro Computer Inc. (SMCI) | 204.7% |
Oppenheimer says bank stocks are 'significantly undervalued' and gives its top picks.
- Pfizer Inc. (NYSE:PFE) ...
- Johnson & Johnson (NYSE:JNJ) Number of Hedge Fund Investors In Q4 2023: 81. ...
- Elevance Health, Inc. ...
- Walmart Inc. ...
- Exxon Mobil Corporation (NYSE:XOM) ...
- Intel Corporation (NASDAQ:INTC) ...
- Union Pacific Corporation (NYSE:UNP) ...
- Danaher Corporation (NYSE:DHR)
On reasons that are fueling banking shares of the Indian stock market, Saurabh Jain, Vice President — Research at SMC Global Securities said, "This rise in the banking stocks today can be attributed to two major reasons — soft Indian inflation data for January 2024 and soft US CPI data that is expected today.
What happens to your stocks when a bank collapses?
The SIPC will replace any missing stocks, bonds, and other securities up to $500,000 per account, including a certain amount in cash. (See the SIPC website for details.) Losses exceeding these limits could eventually be recovered if there are adequate proceeds after the firm's liquidation.
The current government's focus on long-term projects of infrastructure, power, and agriculture would benefit PSU banks more than private banks as they traditionally have higher exposure in these sectors. This is one of the factors due to which the share prices are soaring to new highs.
For financial security, keep some cash in the bank. Double emphasis on some, because there are good reasons not to keep too much money in cash, too. Inflation decreases the value of any money you hold in cash. Inflation, aka rising prices over time, reduces your purchasing power.
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.
