The set-up for bank stocks is looking like 1995, when they surged 54%, analyst says

Analysts at RBC Capital Market say banks could thrive next year if we see a replay of 1995. That year was a terrific one for banks, which soared 54%, outperforming the broader S&P 500 by about 20 percentage points. The parallel between now, potentially, and then, is that the Fed rate hike cycle came to an end and the economy had a soft landing.

Granted, there’s the prospect of the final Basel III Endgame capital rules, which bank CEOs recently took to Capitol Hill to protest. But RBC analysts led by Gerard Cassidy say the key issue will be credit quality.

“We do not foresee this cycle being anything similar to 1990 or 2008-2009 due to a de-risking of the industry following the 2008-2009 financial crisis,” they say. Furthermore, the imposition of the Current Expected Credit Losses, or CECL, accounting standard means banks have higher levels of loan-loss reserves to draw upon than in past recessions.

And banks are cheap, the RBC analysts say, even when considering the losses in their bond portfolios that they don’t have to mark to market (and which will get smaller as interest rates decline).

RBC says the banks to own are Bank of America
BAC,
+5.93%,
Fifth Third
FITB,
+8.62%,
Huntington Bancshares
HBAN,
+6.98%,
KeyCorp
KEY,
+5.80%,
M&T
MTB,
+4.73%,
PNC Financial Services Group
PNC,
+4.78%,
Truist Financial
TFC,
+6.06%,
Valley National
VLY,
+6.26%,
Western Alliance Bancorp
WAL,
+9.35%,
Webster Financial
WBS,
+6.02%
and Wintrust Financial
WTFC,
+3.15%.

Michael Marone, co-founder and co-chief investment officer at Crescent Rock Capital, isn’t so sure. In an interview published by Columbia Business School, he said his fund was less short on regional banks in November than it was heading into the year, but it would need to see a hard landing before getting involved.

“Banks and financials generally are good investments to consider after turmoil. March [when banks including SVB collapsed] was not enough turmoil, not with financial conditions still needing to tighten,” he said. He’s also concerned that even a recession will not dampen inflation entirely, normalizing at a higher level than before COVID.

And he noted the regulatory response after March. “We’ll just have to see how cheap the banks get.”

The market

Stock futures
ES00,
+0.23%

NQ00,
+0.31%
were pointing higher. Gold
GC00,
+0.64%
was higher, and the yield on the 10-year Treasury
BX:TMUBMUSD10Y
remained below 4%. The Hang Seng
HK:HSI
rallied after a well-received central bank lending facility, though retail sales in China lagged economist estimates.

The buzz

Triple witching expiration of more than $5 trillion worth of options contracts is ahead, along with the rebalancing of the S&P 500 and Nasdaq-100.

Costco Wholesale
COST,
-1.75%
— which sold 2.9 million pumpkin pies over Thanksgiving — largely met expectations with its fiscal first-quarter results, as it declared a special cash dividend.

Miami-based home builder Lennar
LEN,
+6.65%
reported stronger-than-expected earnings on weaker-than-estimated revenue.

The Empire State manufacturing survey and industrial production data are set for release.

Jeff Bezos played down AI dangers in a lengthy podcast interview.

Best of the web

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Chinese spies allegedly recruited European politician — via crypto — in operation to divide the west.

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Top tickers

Here were the top stock-market tickers on MarketWatch as of 6 a.m. Eastern.

The chart

Momentum-driven commodity trading advisers have stopped being short on stocks, but they still have plenty of buying to do, according to UBS strategists. “Overall positioning currently stands at 11% of their [assets under management] and we expect it to increase to 15% over the next two weeks,” say a team led by Nicolas Le Roux.

Random reads

That bull that was loose at Newark’s Penn Station is now named Ricardo and gets to live at an animal sanctuary.

Elon Musk’s ex Grime filed a trademark application for the word Grok — to use for a toy — a month before Musk’s company behind the AI chatbot did.

Southwest Airlines
LUV,
+2.09%
has a policy for plus-size passengers to get a free seat — but they advise them to get an extra ticket first and seek reimbursement later.

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