So far, The Wall Street Journal reports that the "KBW Nasdaq Bank index" is up "around 14%." Individual bank stocks are doing even better, with giant Bank of America (NYSE: BAC) up 18% in a week. As the Journal joyfully proclaimed, there's a new enthusiasm for "
And yet, it's a truism on Wall Street: By the time news appears on the front page of the Journal, it's not really news anymore, and the time to profit from it has passed. And so it is that at the same time as the Journal is proclaiming the return of bank stocks to prominence, Wall Street bankers themselves are declaring the rally over.
Here are three things you need to know about that.
1. Baird bashes banks
Beginning with the highest-profile downgrade of the day, well-regarded R.W. Baird (
Nor is Bank of America the only stock on Baird's chopping block. Among its other downgrades, one that stands out is Baird's drastic ratings cut of Fifth Third (NASDAQ: FITB) stock to underperform. In addition to citing the same concerns that scared it out of B of A stock, Baird warns that Fifth Third stock is already pricing in the benefits of Fifth Third's "Project North Star efficiency program," leaving little room for profits improvement -- and leaving the stock looking overpriced.
2. Bernstein does, too
Analysts at Bernstein (
3. Piper Jaffray joins the crowd
And then there's Piper Jaffray (
The most important thing: Patience
So who is an investor to believe in this brave new world for banking stocks? The venerable Wall Street Journal, or the bankers themselves? That's hard to say. On the one hand, the Journal is right to point out that even after their rally, most bank stocks sells for discounts to the stock market as a whole, and significant discounts to their own book values as well.
Traditionally, investors have viewed
Sure, if growth returns to the banking sector under a President Trump, it's possible these banks will grow into their valuations in a few years' time -- but that remains to be proven. For now, the best move may be to heed the warnings of the folks who know banking stocks best: The bankers themselves.
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