Banks Lose Investors’ Interest
As threads of the economy come loose, investors dart for cover, the Fed pumps the brakes, and world leaders lock horns on trade. Everyone knows their part. Everyone knows their lines. Except, bank investors!
Taking a risk in the business world often involves debt. Taking a loan lets you invest bigger, sooner, to scale up quicker. The loan shop is the bank, and it ideally earns its worth by lending at high interest rates. As entrepreneurs and large corporations lever up on borrowed money, the bank hopes that its periodic interest rate payments on that money will impress investors.
Long story short, the big banks are lending on a prayer right now. Market rumblings suggest the Fed could cut rates again, squeezing banks’ profits between interest they’re owed on money lent, and interest they owe themselves to depositors with their nest eggs in savings accounts. We’re dealing in pittances!
All this leaves bank shareholders in limbo, wondering whether to wait out the storm or find new investments. Given the delicate geopolitical picture of current times, steep 10% falls in bank stocks this week could either be the start or the end of a pullback. Some long-term investors are buying the dip, while others want to get shot of the financial sector altogether. That money is rotating into recession-buoyant industries, such as pet care, alcohol, discount stores, and utilities.
As always, a middle ground of investors has opted for a conservative compromise, waiting to see what happens. However, sitting on the fence does little to differentiate a stock picker from the average market player. Correctly timed, it’s the bold decisions that can earn fortunes. So, let’s think about this!