The stock prices of the largest publicly traded broker-dealers and financial firms have generally been heading in a negative direction due to strong predictions of an economic recession, which means weaker business and poor results for the sector.
The SPDR S&P Bank ETF, for instance, is down nearly 21% year to date and close to 19% for the past 12 months. The Vanguard Financials Index Fund has dropped 17.25% so far in 2022.
“As recession sentiment has gotten more intense, people have gotten less optimistic about the economy having a soft landing during current rate hike environment as the Federal Reserve battles with inflation,” according to Eric Compton, a senior equity analyst for Morningstar. “As that sentiment gets worse, the market has fallen, and the banks, which are recession-sensitive, are not immune to that.”
Compton notes, though, that as interest rates rise so should interest income — which can account for roughly up to 70% of total revenue for some financial firms. “That revenue boost is not being priced in,” he explained, meaning that some banks are now undervalued.
Here’s how far many, but not all, of the major broker-dealers have seen their stock prices drop from Jan. 1 through June 28, according to data from MarketWatch.
Firms in this sector should begin reporting their second-quarter results on July 12.