The first quarter of 2021 has been pretty good for the US stock markets. The S&P 500 and Dow Jones both hit record highs, while the Nasdaq hit new highs in mid-February before experiencing a correction, down 10% from its highs, to just under of a month.
Nonetheless, the overall performance was impressive as investors gained confidence in cyclical sectors like financials, energy and other economic rebound games. The S&P 500 rose 5.8%, while the Dow Jones and Nasdaq gained 7.8% and 2.8% respectively.
Banks are one of the favorite industries
Bank stocks have regained investor confidence after a turbulent 2020. For the three months ended March 31, 2021, the S&P Banks Select Industry Index rose more than 24%, while it was down nearly 12% last year.
One of the key themes for the quarter was the expectation of an impressive economic rebound. The Federal Reserve, in its latest summary of economic projections, noted that the US economy will grow 6.5% in 2021, up from 4.2% for the previous projection.
Apart from that, other favorable data such as steadily declining jobless claims, a strong housing market and rising consumer confidence, as well as the adoption of a $ 1.9 trillion stimulus package. , the decline in the rate of coronavirus infection and the increase in immunization coverage were the driving factors that supported a faster economy. recovery.
With the gradual improvement in the economy, the demand for loans will continue to increase. In addition, the steepening of the yield curve (the difference between short and long-term interest rates) likely supported banks’ net interest margin in the last quarter. The yield on 10-year U.S. Treasury bonds was 1.74% at the end of the quarter, up 82 basis points from 0.92% at the end of 2020.
Thus, net interest income – which constitutes a large part of bank income – should have been supported by the steepening of the yield curve and a modest increase in loan demand.
In addition, the central bank has said that big banks can increase dividends and buybacks, starting in the second half of 2021, once they pass this year’s stress test. This has boosted investor confidence in the banking sector.
5 best performing bank stocks in the S&P 500
While most banking investors had much to celebrate during the January-March quarter, some stocks outperformed others. The biggest winners of the S&P 500 index were United People’s Financial, Inc. PBCT, Fifth Third Bancorp FITB, Wells fargo WFC, Financial regions RF and Bank of America BAC.
These stocks not only outperformed the S&P 500 index, but largely outperformed the Zacks Finance sector, which gained 10.1% in the first quarter of 2021.
Price performance in the first quarter of 2021
Here’s a quick recap of the top five performing S&P 500 bank stocks mentioned above during the last quarter:
United of the People: Founded in 1842 and headquartered in Bridgeport, Connecticut, People’s United is a diversified financial services company. It operates in Connecticut, Vermont, New Hampshire, Maine, Massachusetts and New York.
This Zacks Rank # 3 (Hold) company has grown through acquisitions, helped by a strong balance sheet and liquidity position. In February, the company signed an all-stock deal worth $ 7.6 billion to merge with M&T Bank Corporation.
In addition, strong credit quality is another positive for People’s United. Although credit metrics were under pressure last year due to the chaos caused by the coronavirus, the same is expected to improve with the normalization of business.
People’s United shares rose 38.4% in the first three months of 2021. For the first quarter of 2021, Zacks’ consensus estimate of 34 cents per share has remained unchanged for the past 30 days. The figure suggests year-over-year growth of 3%.
Fifth Third Bancorp: With assets of $ 204.7 billion, Fifth Third Bancorp, based in Cincinnati, HO, has 1,134 full-service banking centers in 10 states in the Midwestern and Southeastern regions of the United States.
Fifth Third Bancorp has broadened its non-interest income base over the years through strategic investments through the North Star initiatives and the buyout of MB Financial (closed March 2019). These should support income growth and lead to expense savings.
Specifically, the company expects annual pre-tax profit of $ 60 million to $ 75 million by 2022. In addition, the transaction is expected to reduce expenses by $ 255 million. In addition, the bank remains focused on branch consolidation efforts.
Shares of this company Zacks Rank # 1 (Strong Buy) jumped 35.8% in the last quarter. In addition, Zacks’ consensus estimate for first quarter 2021 earnings of 67 cents per share has risen 4.7% in the past 30 days. The figure indicates year-over-year growth of 415.4%.
You can see The full list of today’s Zacks # 1 Rank stocks here.
Wells Fargo: San Francisco-based Wells Fargo is one of the largest financial services companies in the United States, with $ 1.96 trillion in assets and over $ 1.4 trillion in deposits. The company has more than 5,032 branches, an extensive network of ATMs, as well as the Internet and other distribution channels in North America and around the world.
Following the disclosure of the sales scandal in September 2016, Wells Fargo faced several sanctions, including a Fed cap on asset growth in early 2018. Nonetheless, the company has come a long way since then, especially with the recent central bank approval. the risk management and governance overhaul plan. He continues to invest in businesses to strengthen compliance and risk management capacity.
In addition, this Tier 3 Zacks company has taken several steps including the divestiture of non-core businesses to focus on core operations, increase efficiency and strengthen the balance sheet.
Wells Fargo shares gained 29.4% in the first three months of 2021. For the first quarter of 2021, Zacks’ consensus estimate for earnings of 61 cents per share was revised from 3.4% to north in the last 30 days. The figure suggests substantial growth from the 1 cent earned in the previous year’s quarter.
Regional finance: Headquartered in Birmingham, AL, Regions Financial is a financial holding company providing retail and commercial banking, trusts, securities brokerage, insurance brokerage, mortgage lending, as well as insurance products and services. As of December 31, 2020, it operated 1,400 bank offices and 2,000 ATMs in a network of 16 states in the South, Midwest and Texas.
Regions Financial continues to benefit from a favorable funding mix and to focus on inorganic growth avenues. In recent years, the company has seen a wave of acquisitions, as part of its efforts to boost diversified activity. While the company remains committed to diversifying its revenue streams, such acquisitions should support its outlook.
In addition, this Zacks Rank # 3 company continues to take action regarding the Simplify and Grow initiative (launched in 2017), including streamlining its structure and refining its branch network while investing in new technologies, channels distribution and other growth drivers. The bank aims to consolidate around 100 branches by 2021 (published in 2019).
For the three months ended March, shares of Regions Financial rose 28.1%. In addition, Zacks’ consensus estimate of 47 cents per share for the first quarter of 2021 has risen 2.2% in the past 30 days. The figure suggests year-over-year growth of 213.3%.
Bank of America: Based in Charlotte, North Carolina, Bank of America is one of the largest financial holding companies in the United States. With total assets worth $ 2.82 trillion as of December 31, 2020, it offers a diverse range of bank and non-bank financial services and products.
Bank of America continues to align the branch network based on customer needs. The bank is on track to open 500 new centers in new cities and redesign 2,500 centers with technology upgrades by 2021. In addition, this company Zacks Rank # 3 plans to add 2,200 more ATMs to its network. These initiatives, along with the success of Zelle and Erica, will enable her to improve digital offerings, as well as cross-selling several products.
In addition, the acquisition of Axia Technologies should further strengthen the bank’s position in the lucrative healthcare payment solutions market. Prudent expense management continues to support the company’s finances. While Bank of America limited dividend payouts to 18 cents per share, it resumed share buybacks in the first quarter of 2021 and authorized $ 2.9 billion for the same.
Over the past three months, the stock has gained 27.6%. Additionally, for the first quarter of 2021, Zacks’ consensus estimate of 61 cents per share has been revised 1.7% north in the past 30 days. The figure implies a growth of 52.5% year over year.
Zacks Top 10 stocks for 2021
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