One metric that Wall Street analysts often count on when doing their work on various sectors is comparable periods in the past. The reason is that often cycles occur where they can look to the past for performance while comparing current statistics that match those in previous years. That is exactly what is happening in the banking sector now, and the analysts at RBC say that the bank stocks need to be bought and owned now.
The RBC team notes in a new research report that the set-up for the banking sector is very similar to the period from 1994 to 1998. During that time, which had some outstanding years for the S&P 500, the banks produced solid outperformance. With the Federal Reserve apparently done cutting interest rates, the similarity between then and now is striking.
The analysts noted this in the report:
The Federal Reserve indicated that it would not engage in further interest rate increases for the remainder of 2019. While the Federal Reserve’s decision comes on the heels of sluggish economic reports, we remain constructive on the overall macro picture, and contend that banks are positioned to perform well in the current environment. We believe that for many market participants, current expectations are anchored in the recency of the 2004-2006 period, despite the dissimilarity of the current period with the former, in our view. Looking back at prior interest rate cycles, we believe the current environment shares more in common with…