Wall Street week ahead - Bank stocks, seen as cheap, still attracts caution
Published: Sep 26, 2014
Source: Saudi Press Agency


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Wall Street week ahead - Bank stocks, seen as cheap, still attracts caution

U.S. stock investors, despite finding few areas of the market that appear cheap with indexes near records, appear reluctant to jump into what could be the biggest bargain out there, Reuters reported.

By many metrics, bank stocks appear to trade at a discount, and are expected to benefit from broad economic growth and interest rate hikes. Yet caution has prevailed over the group, and that could persist next week if investors continue dumping cyclical names for defensive positions, or if the September payroll report suggests the Federal Reserve could delay the first rate hike.

That first rate increase is expected in the second half of 2015, though the specific timing remains unknown. Higher rates are seen translating to higher net interest margins (NIMs), which have been low for major names. Bank of America, Citigroup and JPMorgan Chase all have NIMs below the industry medium of 3.6 percent.

The outlook for NIMs is a bit clouded, as the first rate hike will be preceded by the end of the Fed's bond-buying program, which is expected to result in a flattening of the yield curve. Banks tend to see higher profits under steeper curves, and a flattening could depress NIMs before the first hike.

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