“As confidence in the broader economy continues to erode, bank stocks have been hit particularly hard. The recent plunge in the Philly Fed manufacturing index and ISM indices in July, expectations for floundering job creation and further pressure on asset values, together with renewed concerns over Europe, have each served to pressure sector valuations to levels not seen since 2009 when serious doubts surrounding the health of bank balance sheets took center stage,” wrote Sterne Agee analysts in a recent note on the sector.
“However, bank balance sheets today are generally sound and the strongest they’ve ever been at the potential onset of any recession,” they added. “To be sure, current valuations are far removed from underlying fundamentals today; however, bank equities are clearly discounting the potential for a recession and a protracted period of zero growth for the next few years.”
SPDR KBW Bank ETF
For more information on the financials sector, visit our financial category.
Max Chen contributed to this article.