November turned out to be the best month for the U.S. stock markets since 2022. All three major indexes – S&P 500, Nasdaq and Dow Jones – witnessed substantial monthly upswings. This was driven by investors’ shift in focus to the possibility of interest rate cuts in the future by the Federal Reserve from previous attention to the timeline on rate hikes.
The robust market performance in November was attributable to the sectors that are sensitive to interest rates. Among the top five best-performing sectors is the Financial Services, which rallied 12.9%. The major constituent of the Financial Services sector, banks, are highly sensitive to interest rates. Though the U.S. regional banking crisis earlier this year hurt investor sentiments and turned them bearish on the industry, they have regained confidence.
Hence, we have selected five banks – United Bankshares, Inc. UBSI, Wintrust Financial Corporation WTFC, First BanCorp. FBP, TowneBank TOWN and WSFS Financial Corporation WSFS – that performed impressively in November. These stocks outperformed the S&P 500 index, which recorded a monthly gain of 7.8%.
The central bank played a key role in leading the markets higher in November. The month started with the Fed announcing no change in the interest rates after its two-day FOMC meeting. Currently, the interest rates stand at a 22-year high of 5.25-5.5%.
Further, October’s inflation numbers (showing further cooling down) and other economic data, like the job market and GDP numbers, reinforced investors’ confidence that the Fed is done raising rates. This fueled hopes of a ‘soft landing’ in the U.S. economy and potential interest rate cuts as early as March 2024.
5 Banks to Bet on
Despite the solid performance in November, banks are not out of the woods.
The issue of high rates is expected to exert pressure on NII well into 2024 as business activities continue to slow down. So, banks’ ability to boost profits remains a big challenge. This is further aggravated by huge unrealized losses on bonds and competition for deposits. The rating agencies – Moody’s and Fitch – have cautioned against ‘sticky’ inflation.
Therefore, one must exercise caution while investing in bank stocks.
The five selected banks are fundamentally strong and are expected to withstand worsening operating backdrop. The stocks have a market cap of $2 billion or more and currently carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance in November
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United Bankshares, based in Charleston, WV, offers commercial and retail banking products and services through approximately 250 offices in Virginia, Maryland, Washington, DC, North Carolina, South Carolina, Georgia, Pennsylvania, West Virginia and Ohio.
Higher interest rates, decent loan demand and efforts to improve fee income will continue to support the company’s financials. Over the years, UBSI has expanded through acquisitions. Also, solid liquidity position and capital levels aid the company.
United Bankshares has a market cap of $4.7 billion. The company’s shares have gained 16.6% in November.
Wintrust Financial, based in Rosemont, IL, has more than 150 Wintrust Community Bank locations in Illinois, Wisconsin and Indiana through its 15 community bank subsidiaries. Higher interest rates, decent loan demand and efforts to bolster non-interest income will keep supporting the company’s financials.
Over the years, WTFC, which has a market cap of $5.6 billion, has grown substantially through acquisitions. Also, solid liquidity position and capital levels aid the company.
Wintrust Financial’s shares have rallied 14.9% in November.
San Juan, PR-based First BanCorp provides a range of financial products and services to consumers and commercial customers. Solid loan balance, improving market share and high rates will support the company’s financials.
Further, a strong balance sheet and capital levels will help FBP amid a challenging operating environment.
First BanCorp has a market cap of $2.7 billion. The company’s shares have gained 11.3% in November.
TowneBank, headquartered in Portsmouth, VA, provides retail and commercial banking services for individuals, commercial enterprises and professionals. The company operates more than 45 banking offices across Hampton Roads and Central Virginia, as well as Northeastern and Central North Carolina.
Moderate loan demand, higher rates and strategic acquisitions continue to support TOWN’s financials. The company acquired Farmers Bankshares, Inc. in January 2023, and this has significantly aided the company's top-line growth.
TowneBank has a market cap of $2.1 billion. The company’s shares have gained 9.3% in November.
WSFS Financial, based in Wilmington, DE, operates as a savings and loan holding company. The company operates from 116 offices and offers financial services, including commercial banking, consumer banking, treasury management and trust and wealth management.
Higher rates, decent loan demand, efforts to bolster fee income and strategic acquisitions continue to support the company’s top-line growth. In January 2022, WSFS acquired Bryn Mawr Bank Corporation.
WSFS Financial has a market cap of $2.5 billion. The company’s shares have gained 8.3% in November.
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