Martes 18/05/21 Permisos de Edificios

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U.S. Bank Stocks Shine as Investors Bet on an Economic Recovery
Some $32 billion has flowed into broad financial stocks in 2021, already a full-year record

By May 18, 2021 5:33 am ET

The day after reporting first-quarter earnings, Bank of America issued $15 billion in debt.
Photo: David Paul Morris/Bloomberg News
Everyone is clamoring for a piece of U.S. banks.

Investors, eager to get exposure to an economic recovery, are pouring into bank stocks like never before, putting the stocks on track for what could be their best year on record compared with the S&P 500. Bank of America Corp. BAC 0.90% and JPMorgan Chase JPM 0.40% & Co. recently issued gigantic bonds that rank as the two largest single bank deals in history, turbocharging a big year for financial debt issuance.

After years of underperformance since the 2007-08 financial crisis, and a particularly brutal 2020, longtime bank investors are feeling some long-awaited validation. Analysts say the stocks remain cheap, and many shareholders view them as a relatively safe investment that grows along with the economy.

The KBW Nasdaq Bank Index is up about 37% this year, while the S&P 500 is up 11%. Smaller regional banks are doing even better, with the KBW Nasdaq Regional Banking Index up 38%. Last year, the big-bank index fell nearly 14%. It underperformed the S&P 500 by 30 percentage points, even worse than its showings in 2007 and 2009.

About $32 billion has been poured into broad financial stocks this year, according to Bank of America strategists, already setting a full-year record in less than five months.

Tech stocks like Tesla Inc. TSLA -2.19% roared in recent years. They benefit from low interest rates, because investors have few other income-generating investments where they can put their money.

But now investors are looking ahead and starting to think about when the Federal Reserve might start raising rates again as the economy recovers. And banks are one of the few sectors that benefit from rising rates since they can earn more on loans.

“The biggest factor driving flows into the financials has been a belief that 2020 marks a secular low point so far as interest rates and inflation,” said Michael Hartnett, chief investment strategist at Bank of America. “Financial stocks were out of favor and underweight so why not buy in if you see inflation and interest rate increases.”

Banks are also benefiting from their caution last year. When the coronavirus pandemic hit, they set aside billions of dollars to prepare for loan losses. But the expected wave of defaults didn’t happen, and banks are releasing some of those rainy-day funds. Their Wall Street arms, which underwrite stock offerings and trade stocks, posted strong results in a roaring market.

Those dynamics already helped boost first-quarter earnings. There is also an expectation among investors and analysts that the banks will increase dividends and stock buybacks after this year’s round of Federal Reserve stress tests.

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Do you own bank stocks? Why or why not? Join the conversation below.

The day after reporting earnings, Bank of America issued $15 billion in debt and JPMorgan sold $13 billion. Those were the largest bank issuances in history, according to data tracker Dealogic. The financial industry as a whole has issued about $221 billion in debt this year, only slightly trailing last year’s record pace. In 2020, nervous companies of all types issued debt as they worried over how the pandemic would affect their cash flow.

Even with the strong performance, big-bank bulls believe the market could keep climbing. Financial stocks have been underperforming so long that they remain among the cheapest stocks in the market. Banks trade at around 13 times their expected 2022 earnings, while the S&P 500 trades at more than 22 times, a wider gap than the historical average.

As long as that gap persists, banks are acting more as a gauge on broad macroeconomics instead of true investor belief in the industry. For instance, when consumer prices rose more than expected last week, bank stocks dropped sharply.

“They are still pretty much as cheap as they have ever been relative to the market,” said Eric Hagemann, an analyst at Pzena Investment Management Inc. “The market is still trying to figure out how it wants to feel about the banks.”

A key question will be whether the banks can muster loan growth, after a year when their loan books shrank. So far, the views are mixed and investors will be watching executive comments in coming months.

Deutsche Bank analysts said the market hasn’t yet priced in potential economic strength for 2023 and 2024, which could lift bank earnings even further. They said the stocks could rise 25% to 50% more in that time, among the more bullish views.

Write to David

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Stock Futures Gain, Led by Tech
S&P 500 is poised to grind higher after the opening bell to erase Monday’s muted losses

By Updated May 18, 2021 6:19 am ET
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U.S. stock futures edged up Tuesday, suggesting that the major indexes are poised to rebound ahead of data on new home building.

Futures tied to the S&P 500 index rose 0.4%, while Dow Jones Industrial Average futures added 0.3%. Nasdaq-100 futures gained 0.8%, putting technology shares on course to pare some recent losses.

Stocks have been choppy in recent trading sessions as concerns about a spike in inflation weighed on sentiment. Investors are contending with a raft of unknowns, such as whether rising prices will prove temporary or more persistent, and whether the Federal Reserve will act by raising interest rates sooner than planned.

“That always was the key risk: central banks taking away the liquidity punch bowl before the party has ended,” said Brian O’Reilly, head of market strategy for Mediolanum International Funds.

Inflation ranging between 2% and 4% could be the “sweet spot” for stocks, said Mr. O’Reilly. The economic rebound that is fueling inflation is likely to continue benefiting stocks that are sensitive to the reopening, such as banks, as well as travel and leisure companies. But companies with strong balance sheets and an ability to raise prices, such as pharmaceutical companies and makers of common household goods, should also do well, he said.

“Inflation isn’t necessarily bad for equities, but there will be winners and losers in terms of [which ones] are better at passing on that inflation to the customer,” said Mr. O’Reilly.

While tech stocks have taken the biggest hit from rising inflation concerns, some investors see the recent retreat as an opportunity to buy fast-growing companies.

“Within tech, there are still some companies that look very cheap,” said Jane Shoemake, client portfolio manager at Janus Henderson Investors. “If you believe in the longer-term trends supporting these companies, you should be buying.”

Ahead of the market opening, AT&T dropped over 3%, extending its losses following a deal with Discovery to merge their media assets into a new, publicly traded business.

The yield on the 10-year Treasury note ticked up to 1.645%, from 1.639% Monday. Bond yields rise as prices fall.

Fresh data on U.S. housing starts for April is due at 8:30 a.m. ET. Economists are forecasting a small step back in new home-building after it hit a 15-year high in the previous month. Demand for houses has been strong during the pandemic, but construction firms have also warned about the impact of soaring lumber prices and labor-supply constraints.

Brent crude rose back above $70 a barrel for the second time since the onset of the pandemic. The global oil benchmark gained 0.9% to $70.07 a barrel amid hopes for fuel demand.

Overseas, the Stoxx Europe 600 rose 0.5%. The U.K.’s FTSE 100 gained almost 0.5% after data showed the U.K.’s unemployment rate edged lower in April.

Most major Asian indexes closed higher. Japan’s Nikkei 225 gained 2.1%, while in Hong Kong, the Hang Seng Index rose 1.4%. Taiwan’s Taiex jumped 5.2%. In mainland China, the Shanghai Composite Index edged up 0.3%.

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Home Depot Sales Surge, Extending Growth During Pandemic
Home-improvement retailer’s same-store sales grew 31% in latest quarter

By May 18, 2021 7:02 am ET

Atlanta-based Home Depot’s sales climbed to $37.5 billion in the three months ended May 2.
Photo: Steven Senne/Associated Press
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Home Depot Inc. HD -1.12% extended a streak of robust year-over-year sales growth in the February-through-April quarter as a rise in demand that began with the coronavirus pandemic continued into 2021.

Sales for the Atlanta-based home-improvement retailer climbed to $37.5 billion in the three months ended May 2, from $28.26 billion in last year’s fiscal first quarter. Home Depot’s profit rose to $4.15 billion, or $3.86 a share, from $2.25 billion, or $2.08 a share, a year earlier.

Wall Street analysts had been forecasting sales of $34.82 billion and profit of $3.02 a share, according to a FactSet survey.

Chief Executive Craig Menear attributed the results to unprecedented demand for home-improvement projects. On a comparable-store basis, the company’s sales rose 31%, including a 30% climb in the U.S.

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What home improvement projects have you undertaken during the pandemic? Join the conversation below.

Even as much in-person retail evaporated last spring, Home Depot worked to keep its stores open, arguing that it should be considered an essential retailer. As homebound Americans shopped for basic supplies and took on household projects during the pandemic’s lockdowns, demand for products from house plants to cleaning chemicals and kitchen appliances soared.

A booming housing market and federal support in the form of enhanced unemployment benefits and stimulus checks have also bolstered home-minded consumer spending.

Despite a broader economic downturn, that trend has lifted the fortunes of Home Depot, a company whose focus on home projects had meant its growth was usually linked to baseline economic growth.The company’s share price has risen more than 33% over the last year, closing on Monday at $320.01. In pre-market trading, shares were up 2.5% Tuesday morning.

In the latest quarter, Home Depot’s tally of customer transactions rose to 447.2 million, from 374.8 million a year earlier. The average ticket rose to $82.37, from $74.70 in last year’s first quarter.

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CHG %CHG
DJIA 34263.36 -64.43 -0.19
S&P 500 4163.98 0.69 0.02
Nasdaq Composite 13466.66 87.61 0.65
Japan: Nikkei 225 28406.84 582.01 2.09
UK: FTSE 100 7042.62 9.77 0.14
Crude Oil Futures 65.77 -0.50 -0.75
Gold Futures 1867.80 0.20 0.01
Yen 108.90 -0.34 -0.31
Euro 1.2224 0

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LAST CHG %CHG
DJIA 34270.35 -57.44 -0.17
S&P 500 4158.70 -4.59 -0.11
Nasdaq Composite 13429.09 50.04 0.37
Japan: Nikkei 225 28406.84 582.01 2.09
UK: FTSE 100 7034.24 1.39 0.02
Crude Oil Futures 65.30 -0.97 -1.46
Gold Futures 1868.80 1.20 0.06
Yen 108.90 -0.33 -0.30
Euro 1.2224

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LAST CHG %CHG
DJIA 34060.66 -267.13 -0.78
S&P 500 4127.83 -35.46 -0.85
Nasdaq Composite 13303.64 -75.41 -0.56
Japan: Nikkei 225 28008.09 -398.75 -1.40
UK: FTSE 100 7034.24 1.39 0.02
Crude Oil Futures 64.56 -0.93 -1.42
Gold Futures 1868.20 0.20 0.01
Yen 108.94 0.06 0.06
Euro 1.2228 0.0004