Omicron Sends Bank Stocks Seesawing

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The KBW Nasdaq Bank Index has been hit by recent market turmoil, but it is still on pace with its best year since 1997.

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But since Thanksgiving, when the Omicron version emerged, KBW has fallen by 8%, more than the decline in the S&P 500. Bank stocks rallied on Monday and Tuesday, nearly halving their post-Thanksgiving losses.

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Banks play a central role in the US economy, so the outlook for US growth causes their stock prices to swing higher than the broader stock-market index.

Some investors say the recent volatility hasn’t changed their optimism. They are betting that the US economy will continue to recover, which will propel bank stocks. Banks sank at the start of the coronavirus pandemic, but have held up well since then, avoiding major losses in their consumer units and churning out profits into their Wall Street arms.

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“It couldn’t have been more straightforward to figure out that when the economy improves, people will be interested in banks,” said Fredrick E. Russell, founder of the Fredrick E. Russell Investment Management Company in Tulsa, Okla.

Mr. Russell said he has increased the share of his customers in Bank of America by about 50% from a year ago. The bank’s stock has been on an uptrend for most of the year, though it’s down about 6% since Thanksgiving. Mr Russell is concerned the Omicron version will impact economic growth, but has not reduced his position in the stock.

Wells Fargo & Company, JP Morgan, Morgan Stanley and Goldman Sachs Group Inc.

followed a similar pattern. They all fell after Thanksgiving, but are still up more than the broader market this year.

KBW is up 38% this year from Monday, despite the recent drop. If that happens, it would be the index’s biggest annual gain since 1997.

Investors are trying to analyze whether Omicron is just a temporary setback or a longer-term pressure on the broader economy. They are also betting on whether the highest inflation in decades will curtail Americans’ ability to withstand even a minor recession. Investors say it will challenge bank stocks, whose price gains reflect an already optimistic economic outlook.

Bank stocks have taken a winding path since the pandemic began in the spring of 2020. Initially, fears of massive loan defaults forced the largest lenders to pay off tens of billions of dollars, eroding their profits and causing stock prices to plummet. Shares rose after banks said their loan portfolios were performing better than expected.

Now, however, banks are dealing with a different problem: weak credit demand. When they had nowhere to go, people collected money. Businesses borrowing access to capital markets and taking forgivable loans from the government. Rock-bottom interest rates also consumed interest income.

Recently, this has started to change. Net interest margin, the difference between what banks pay to borrow and what they earn from lending, widened from a record low in the third quarter, according to Federal Deposit Insurance Corp Bank officials. Bank officials say they are also seeing signs that demand for loans is picking up. UP.

For many investors, the question of whether bank stocks can keep up with the momentum hinges on whether the Federal Reserve’s expected rate hike can moderate inflation without stifling growth.

“People are still buying into financial stocks in the hope that there will be a rising rate environment,” said Dave Wagner, portfolio manager at Aptus Capital Advisors in Cincinnati.

For much of this year, he increased the amount of bank shares in the actively managed exchange-traded fund he ran. He cut his holdings before Omicron got hit.

Ben Eisen [email protected] . Feather

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