Even Warren Buffett’s Berkshire Hathaway has been buying Citi stock, a vote of confidence if there ever was one.
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Bank stocks have gotten hit as concerns about the U.S. economy have grown. They’re starting to look like bargains, and none more so than
SPDR S&P Bank
exchange-traded fund (ticker: KBE) has dropped 20.4% this year, only slightly less than the
22.9% decline. The trading and capital-markets activity that helped some of the biggest banks notch record profits during the pandemic is drying up, while investors fret the banks will have to start building up depleted reserves.
Even the factors that should have helped banks have yet to work in their favor. After years of low interest rates that squeezed profits, higher rates were supposed to provide a boost to earnings. Instead, the bank ETF dropped 3.8% on Thursday, the day after the Fed raised rates by three-quarters of a percentage point. It turns out that investors are less excited about the prospect of growing net interest income when it’s expected the Fed will trigger a recession.
It’s a challenging economic backdrop for banks—but they should be able to handle it. This isn’t 2008, when financials were at the center of a global meltdown. Even if the economy is recession-bound, banks are better equipped to handle economic shocks than they were more than a decade ago.
Don’t take our word for it. This week, the Fed will release the results of its annual stress test, to gauge if the largest banks can absorb losses and still lend to households and…