U.S. Bank Stocks Shine as Investors Bet on an Economic Recovery

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Investors, eager to get exposure to an economic recovery, are pouring into bank stocks like never before

, because investors have few other income-generating investments where they can put their money.

But now investors are looking ahead and starting to think about when the Federal Reserve might start raising rates again as the economy recovers. And banks are one of the few sectors that benefit from rising rates“The biggest factor driving flows into the financials has been a belief that 2020 marks a secular low point so far as interest rates and inflation,” said Michael Hartnett, chief investment strategist at Bank of America.

Even with the strong performance, big-bank bulls believe the market could keep climbing. Financial stocks have been underperforming so long that they remain among the cheapest stocks in the market. Banks trade at around 13 times their expected 2022 earnings, while the S&P 500 trades at more than 22 times, a wider gap than the historical average.

As long as that gap persists, banks are acting more as a gauge on broad macroeconomics instead of true investor belief in the industry. For instance,

 

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