US bank stocks are defending themselves well

Stock markets positively received announcements after yesterday's Ukraine-Russia talks. You can see that after some stabilization of the situation related to the war, the markets focus more on inflation and rising bond yields. And this is favorable to the banks and the financial sector in the US.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Markets price "end of war"?

The market welcomes the information about the ongoing "constructive" Ukrainian-Russian talks. Although it is definitely too early for a breakthrough and a possible Zelensky-Putin meeting, the mere fact of holding the talks is seen as a path to a possible de-escalation. The information that appears at the same time about the partial limitation of the Russian offensive to selected regions also indicates such an opportunity. After yesterday's talks, shares on the continent rose the most - WIG20 increased by 2,5%, German DAX by 2,4%, a French CAC40 by 2,7 percent Stocks in London (FTSE100) by 0,75 percent and from the USA by 0,61 percent.

The S & P500 and WIG20 have already recovered more than half of their own declines since the beginning of the year - the S & P500 is losing 4,04 percent today. and WIG20 4,66 percent. Every year. You can see that today financial markets are turning their eyes more and more away from the war to focus on rising inflation and higher US bond yields. AND FED more and more it aims at further increases, despite the slowdown in economic growth. There are further alarming voices regarding inflation, which in the US rose to 7,9% in February. (it came close to the level of inflation in Poland, which amounted to 8,5%). While the price of Brent crude oil has dropped from over $ 120 to around $ 106 over the past week, this is still a level that will drive inflation

Conditions favorable to the financial sector

Inflation and rising yields on long-term bonds in the US are positive news for companies from the financial sector. Financial companies are the largest component of the value sector - composed of companies with a favorable valuation in relation to their intrinsic value. From the beginning of the year, the financial component of the index S & P500 is positive, growing by 0,89 percent. (against 4,04% decline in the entire S & P500). Polish banks are doing worse, despite the fact that the basic interest rate in Poland is already 3,5 percent, while in the US it is only 0,25 percent. Since the beginning of the year, the WIG Banks index has fallen by 11% (while the WIG20 index has fallen by 4,66%). This is the result of concerns about the condition of public finances (additional expenditure on armaments and refugees) as well as the condition of the loan portfolio. In prospectively further interest rate increases in Poland, the interest rate on loans may reach a level where its servicing may become impossible for many borrowers. Already, the interest rate on some housing loans has exceeded the level of 6%.

However, such a situation should be favorable for bank profits. It is true that in the US we are currently dealing with a flattening yield curve in banks. It is a narrowing gap between short-term and long-term yields, which may mean both lower economic growth (risk to the increase in the value of loans and the level of their repayments) and a lower interest margin. This may worry investors, but as inflation slows down this effect will fade, helping financial companies and the value sector as a whole.

Banks on the US stock exchange are currently characterized by the lowest valuations, a strong capital position and still low risk of recession. When investing in this sector in the US, it is worth taking a closer look ETFs. In the case of finance, it could be Financial Select Sector SPDR ETF, and for banks - SPDR S&P Bank ETF, while for regional banks - SPDR S&P Regional Banking ETF. It's also worth getting acquainted with the portfolio HomePortfolio @TheBigBanks on the platform eToro.