Published on Barrons.com – December 10, 2016 By Ben Levisohn
Without something new to propel the stocks higher, banks remain at risk of a sharp pullback.
The last time we checked, gravity still functions—and that’s just as true for markets as for apples falling from trees. For investors in bank stocks, that creates something of a bind.
The SPDR S&P Bank exchange-traded fund (KBE) has returned 26% since Trump’s election last month, topping the S&P 500’s 5.8% gain by more than 20 points. The rise in bank stocks has been well deserved, says Ron Temple, head of U.S. equity at Lazard Asset Management, who notes that they’re likely to benefit from lower taxes, a steeper yield curve brought about by higher inflation, a Federal Reserve more inclined to hike rates, and less onerous regulation.
But make no mistake: Gravity will reassert itself. Right now, financials are “held up by air,” says independent strategist Peter Kenny, and will need a new catalyst to push them higher. That catalyst could be the Fed, which meets next week and is expected to hike interest rates. But without something new to propel the stocks higher, banks remain at risk of a sharp pullback, says Kenny, even if it proves to be short-lived. “Financials have significantly more room to run,” he says. “But a pullback will come.”
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