Financials surged on Monday following strong Bank of America earnings, with peers such as Citigroup, Wells Fargo and Goldman Sachs rallying on the day. As investors navigate the onslaught of big bank reports and volatility in the financial sector, some market watchers are anticipating further upside ahead.
This optimism comes even as the group’s price action this year hasn’t been very pretty. The financial sector is still negative year to date even as the broader markets have recouped most of their annual losses, and the financials-tracking XLF is flirting with correction territory. Moreover, the bank-tracking KBE is barely positive this year even against rising U.S. interest rates.
Ahead of reports this week such as Goldman Sachs, reporting Tuesday morning, and Morgan Stanley, reporting on Wednesday, Michael Bapis of the Bapis Group at HighTower Advisors told CNBC’s “Trading Nation” why he’s uber-bullish on the big banks.
• An expanding economy supports a bullish environment for banks, which would theoretically incentivize big banks to increase their dividends and share buybacks. Furthermore, banks’ valuations are reasonable at this juncture relative to the market.
• The perception of some relief from trade war concerns may lift investors’ sentiment around the economy. Even quarterly earnings results that fall in line with estimates should reinforce investor confidence in banks’ operating performance.
• Financials have lagged in recent months, but broadly passing the Federal Reserve’s stress tests last month was a positive for the group.
• Looking ahead, stimulus from corporate tax cuts and the regulation pendulum swinging back into favor for the big investment banks should prove positives.
Bottom line: Bank stocks rallied on Monday in the thick of big banks’ earnings reports, and one money manager sees bigger gains ahead.