BLACKROCK: It's time to buy banks

pulse

September 25, 2017 9:14 PM

The optimism on banks, which make up most of the financials sector, is widespread.

The world's largest asset manager is adding its voice to Wall Street's bullishness on bank stocks.

"U.S. banks have lagged the broader market and European peers year-to-date,"said Richard Turnill, BlackRock's global chief investment strategist, in a note Monday. "We believe this trend has turned."

The optimism on banks, which make up most of the financials sector, is widespread. On Thursday, an exchange-traded fund tracking financialssaw outstanding call contracts — or bets that an asset's price will rise — climb to the highest since December, relative to bearish puts, according to Bloomberg.

Banks, and financials more broadly, were expected to get an income boost from higher interest rates and from loan growth on higher inflation. Both of these things haven't risen as quickly as expected, but investors like Turnill are counting on a turnaround from a few other catalysts.

For example, he singled out a divergence between interest-rate expectations and the performance of the banking sector in late June. Bank stocks rallied even as traders lowered their bets for rate hikes from the Federal Reserve.

Turnill sees the Fed's balance sheet reduction as likely increasing interest rates and therefore the income that banks earn from lending. Regional banks could benefit from this since more of their business involves lending and holding deposits versus the larger firms that combine these traditional roles with investing.

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