Looking for a Black Friday Deal? Check Out Bank Stocks.

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Banks shopping for Black Friday deals will want to look at stocks.

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Banks were among the weakest performers in Friday’s sell-off, with the SPDR S&P Bank exchange-traded fund (ticker: KBE) down 4.6%, the S&P 500 down 2.2% and the Dow Jones Industrial Average down 2.5%.,

Investors were rushing to sell stocks over the Thanksgiving holiday weekend over concerns of a new and potentially rapidly spreading coronavirus variant from southern Africa. At least one case was identified in Europe, prompting fears that new restrictions to slow the spread of the virus would curtail economic activity. Friday’s shorter trading day, coupled with a reduction in post-holiday volume, contributed to volatility.

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When stocks were in freefall, investors rushed to protect the bonds, pushing the yield on the 10-year Treasury note from 8% to 1.5% before Thanksgiving, down more than 1.6%. Bond yields move inversely to bond prices.

Banks have proven their resilience during the COVID pandemic, helped by healthy deal-making and trading activity over the past two years. A drop in bond yields is a downside, however, as it can reduce banks’ net interest margins, or the difference between the interest they earn on loans and payments on deposits.

Net interest margins have recently shown signs of rebounding as the economy has recovered. If the Federal Reserve raises interest rates next year, they could get a further lift than many expect.

Despite the latest drop in yields, some on Wall Street believe Friday’s bank selloff is overblown and could represent a buying opportunity.

“The story of the banks is that they still look pretty intact,” said Barry Knapp of Ironsides Macroeconomics. baron’s, “This variant may exacerbate supply-chain issues, but the impact on economic activity will not be great.”

Knapp said the foundation of the economy looks strong. Data from the Bureau of Economic Analysis released on Wednesday showed that GDP grew 2.1% in the third quarter, while gross domestic income (GDI) grew by 6.7%. Knapp said the relative increase in income would be a driver of spending and jobs.

The World Health Organization has called a special meeting on Friday to discuss variants cautioning against travel restrictions so far.

Knapp notes that bank stocks are among the few industry groups in the S&P 500 stock index that still look cheap. Banks are trading at an average of 10.7 times next year’s estimated earnings, while the market has a multiplier of 24 times.

Shares of Bank of America (BAC) were down 3.8%, while JPMorgan Chase (JPM) and Wells Fargo (WFC) were down 3% and 5.8%, respectively.

Write to Carleton English at [email protected]


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