Bank Stocks Rally, Could Continue to Outperform Tech


The Dow Jones Industrial Average continued to slump Friday, opening down more than 200 points. However, analysts are touting “value stocks,” including bank and energy stocks, to be the new investment opportunity as tech stocks dip, CNBC reports. 

See: Treasury Yields Spike, Tech Stocks Dip – Here’s What the Market’s Bad Day Means for Retail InvestorsFind: Google Searches for ‘Inflation’ Surge – Is It Time to Start Worrying About Higher Prices?

Although Nasdaq opened up by a marginal 0.13% this morning, the S&P 500, which includes tech giants such as Tesla and Apple, was down 0.43% and continuing to fall just hours after the market opened.  

But the exchange-traded fund SPDR S&P Bank spiked mid-day yesterday, hitting a six-month high of $56.43. Analysts say the bank stock rally could continue even as the market lulls with the rise in treasury yields, Barron’s reports. 

See: What Is a 10-Year Treasury Note and How Does It Work?Find: Best ETFs to Buy for Long-Term Growth

As bond yields rise, inflation could be on the horizon. Many tech companies’ profits could suffer as inflation diminishes the value of their future cash flows. Yields hit 1.75% Thursday, the highest rate in more than a year, Barron’s reports.

On the other hand, banks suffered during the pandemic, when the Federal Reserve lowered interest rates to near zero. Although the Fed has promised to keep interest rates near zero through 2023, the higher yields still benefit banks, Barron’s explains. Banks make money on the spread between loans and deposits, lending on the long end of the yield curve and borrowing on the short end.

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See: Interest Rates to Remain Near Zero for Years — What Should You Do About It?Find: Fed Chair Powell Testifies Before Congress — ‘Economy Will Depend on the Course of the Virus’

Bank Stocks to Invest In

Barron’s reports some of the banks with the largest gains yesterday:

  • Citizen’s Financial Group, up 5.3%
  • Zions Bancorp, up 5.2%
  • Bank of America, up over 4%

HSBC, which was recently given a “strong-buy” rating from the CFRA Research group, currently sits at $30.40, just under its price target of $31, according to U.S. News & World Reports. Wall Street predicts a 3.8% return for the stock, although some analysts say it could exceed that.

PNC Financial Services Group exceeded its buy price of $170 with yesterday’s rally but remains one to watch. As yields continue to rise, smart investors will look for dividend-producing bank stocks and hold for long-term gains.

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