The financial sector has been experiencing a significant boom in recent times. With the S&P 500 financial sector surging more than 16% this year and nearly 4% in the past month, it is evident that investors are optimistic about the future of financial stocks. This growth has also been reflected in the sector’s performance during the third quarter, with a 7% increase outperforming the S&P 500’s mere 0.3% rise during the same period. The driving force behind this optimism is the expected Federal Reserve rate cut later this month, which has boosted confidence in the U.S. economy’s ability to avoid a potential recession.
Historically, lower interest rates have proven to be beneficial for banks. According to Wells Fargo, in the week following the first rate cut of a cycle, banks tend to fall by an average of 6%. However, from that low point, the segment experiences an average increase of 21%. This historical data suggests that the current wave of rate cuts could potentially lead to a significant boost for banks in the near future. Given this historical context, investors are keeping a close eye on financial stocks as they anticipate further growth in the sector.
In light of the positive sentiment surrounding financial stocks, investors are on the lookout for potential winners in the sector. Using the CNBC Pro Stock Screener tool, analysts have identified several financial stocks that are well-liked by analysts and are expected to perform well in the near future. The criteria used for the screener include stocks that are members of the S&P 500 financials sector, maintain a consensus buy rating from analysts, and have average price targets implying at least 10% upside.
Among the financial stocks that have caught the attention of analysts is KKR. With a 40% increase in shares in 2024 and an average price target suggesting nearly 17% upside ahead, KKR has positioned itself as a strong contender in the financial sector. Redburn Atlantic recently initiated coverage on KKR with a buy rating, praising the company’s efforts to diversify its business through strategic acquisitions and asset growth.
Another notable stock on the list is Wells Fargo, which has seen an 8% increase in shares this year. Analysts expect a further 16% upside for the stock, with Deutsche Bank recently upgrading it to a buy rating. The bank’s recent pullback has created an attractive entry point for investors, with regulatory risks perceived to be more priced in than they were a few months ago.
Bank of America is also on the radar, with a 15% surge in shares in 2024 and analysts predicting a 17% upside. Following Berkshire Hathaway’s divestment in the stock, Deutsche Bank sees this as a buying opportunity, further supporting the positive sentiment surrounding financial stocks.
The financial sector is currently experiencing a period of growth and optimism. With the anticipated Federal Reserve rate cut and historical data suggesting a potential boost for banks, investors are keeping a close watch on financial stocks. By identifying potential winners through thorough analysis and utilizing tools like the CNBC Pro Stock Screener, investors can make informed decisions and capitalize on the opportunities presented in the financial sector.