Regional bank stocks have been hit hardest by the flattening of the yield curve lately. As a result of traders fear that bank earnings may fall, the KBW Regional Bank Index has underperformed the S&P 500 by more than 18% so far this year.
At what seems like the worst possible time to invest in small banks, why look now?
Here’s were I think there is some value, and one bank in particular that is set up to weather the storm:
The article is my most recent (after a long absence!) on Seeking Alpha:
The flattening yield curve has dominated the news headlines this month. The spread between 10 year and 2 year treasuries is now the lowest it has been in 10 years:
And this flattening has investors worried about bank earnings. The KBW Regional Banking Index has underperformed the S&P 500 by more than 18% this year:
But current underperformance is no reason to ignore a sector entirely. In fact, with today’s relatively expensive market, the banking sector may be one of the few sources of relative value.
My goal in researching was to find a bank stock that I could buy today and comfortably hold through a period of low rates, even if things get worse.
I started my search with banks that get a larger source of their earnings from noninterest sources, such as wealth management fees, credit card fees, ATM fees, mortgage origination and more. My thinking was, if I could find a well run bank that generated enough income “on the side” from its core banking operations, I could find an investment today that is cheap relative to today’s market, won’t make me lose sleep if rates fall further, and has potential for higher long term returns.
You can read the entire article here:
And it made Editors’ pick: