U.S. bank stocks are morphing from leaders into losers amid more signs that their searing 35% rally through this year’s first five months may have outrun the fundamentals.
With two weeks left in the quarter, some investors aren’t waiting around to find out. The S&P 500 Banks Index, which rose three times more than the broad market through May, slid 8.1% this past week and more than 10% so far this month. This left indexes of the largest U.S. diversified lenders and regional banks ranking among June’s worst performers, with Citigroup Inc.’s drop of 14% leading its money-center peers and Regions Financial Corp. slumping 17%.
The selloff coincides with the plateauing of earnings estimates and a rotation into growth stocks from value. It didn’t help that leaders of the biggest banks started the week by warning about a slump in trading revenue. Without stronger lending and a boost from higher interest rates, earnings probably won’t pick up.
“I am troubled by the lack of supporting data on these companies,” veteran bank analyst Dick Bove of Odeon Capital Group said in an email early in the week. Multiples were reaching 10-year highs, Bove said, even though “there is no evidence to date that this recovery is underway.”