Banking stocks ‘look likely to make new lows’

Banking stocks ‘look likely to make new lows’

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© Reuters Bank stocks “appear to be making new lows” – Deutsche Bank

By Sam Boughedda

Deutsche Bank analysts downgraded Bank of America (NYSE:), JPMorgan (NYSE:) and Truist Financial Corp. shares. (NYSE:) downgraded hold from buy in a statement on Friday, stating that bank stocks are “likely to make fresh lows. “

Analysts also lowered Bank of America’s price target to $36 from $45, Truist’s price target to $48 from $61, and JPMorgan’s price target to $145 from $155.

“Bank stocks have rallied 10% from the Oct. 12 low, marking the third such bear market rally since bank stocks entered a bear market (ie, down 20% from the highs as of April 14). With the current rally, BKX is now down 30% from the peak – suggesting stocks are pricing in a 65% to 70% chance of a moderate or worse recession,” the analysts said in the note.

While acknowledging that it’s tempting to get more positive as stocks are already down sharply, inflation appears to be slowing and rate hikes may be coming to an end, they explained that the company’s “gut feeling is that stocks are new bottoms and price fully (or close) into a US recession, suggesting there is more risk from here.”

Deutsche Bank’s assessment “reflects ongoing macro risks and likely weakening bank fundamentals — including spikes in net interest margins/NIMs, a likely slowdown in credit growth (particularly in corporate and credit cards), rising borrowing costs, ongoing cost pressures and limited excess capital to support buybacks .”

“Against this macro backdrop, we are also concerned that investment banking fees will remain sluggish against this backdrop and trade will normalize more than expected,” concluded O’Connor.

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