Recently, financial stocks have been experiencing a surge in performance, with the S & P 500 financial sector seeing a growth of over 16% this year and almost 4% in the past month. What’s more, it has also witnessed a 7% jump during the third quarter, outshining the S & P 500’s mere 0.3% increase. This sector’s optimism has been fueled by the anticipation of a Federal Reserve rate cut later this month, with many speculating that it will help the U.S. economy steer clear of a potential recession.
Historical data indicates that lower interest rates following a rate cut can significantly benefit banks. For instance, after the first rate cut in a cycle, banks tend to initially fall by an average of 6%. However, following this dip, the sector typically sees an average increase of 21%. This trend has sparked interest in financial stocks, especially during a period of market downturn, with both the S & P 500 and the Nasdaq Composite experiencing more than a 2% decline in September.
Utilizing the CNBC Pro Stock Screener tool, financial stocks that are not only favored by analysts but also poised for growth have been identified. The criteria used for the screening process include membership in the S & P 500 financials sector, a consensus buy rating from analysts, and a minimum of 10% upside potential based on average analyst price targets.
Among the financial stocks that have met the screening criteria, KKR stands out. With shares showing a remarkable 40% increase in 2024 and an average price target suggesting nearly 17% upside potential, KKR has attracted positive attention. Redburn Atlantic recently initiated coverage on KKR with a buy rating, praising the company’s strategic moves to diversify its business, such as the acquisition of Global Atlantic. Analysts predict significant growth for KKR in the coming years.
Wells Fargo is another stock that made the list, with shares up by more than 8% this year and analysts expecting a further 16% upside. Deutsche Bank recently upgraded Wells Fargo to a buy rating, citing an attractive entry point post a pullback. The bank’s efforts to de-risk and address regulatory challenges have been viewed positively by analysts.
Bank of America is also among the stocks identified through the screening process, with a 15% surge in 2024 and analysts foreseeing a 17% upside. Deutsche Bank’s upgrade of BofA following a stock sell-off by Berkshire Hathaway presents a buying opportunity for investors looking to capitalize on the potential growth of the bank.
The financial sector’s recent outperformance amidst market turbulence underscores the appeal of stocks like KKR, Wells Fargo, and Bank of America. By considering historical trends, market dynamics, and analyst sentiment, investors can identify opportunities for growth and potential breakout in the financial stocks space.