Financial stocks have lagged the broader equity market since the start of the year and since the late March crisis-low. But not all stocks are created equal in the S&P index that tracks the industry, which is down 23% year-to-date.
In fact, so far in 2020, the lead performers of the S&P 500 Financial sector .SPSY have even outperformed the high-flying Nasdaq .IXIC, which is up almost 23% year-to-date. The S&P 500 is up 1%, and the Dow is down 7% for the year so far.
The sector’s wide performance disparity stems partly from low interest rates exposure versus trading exposure in a market that has risen sharply since March.
Stocks that have performed well include exchanges, index companies or banks with trading desks or M&A advisory businesses and some insurance companies, said Aaron Dunn, co-director of value equities and portfolio manager at Eaton Vance.
“The ones relying on the yield curve and the short rates to make money have been more challenged,” Dunn said, referring to banks that are mostly dependent on a steep yield curve to boost profits from their loan business.
While many stocks in the sector are relatively cheap, some investors are wary of economic uncertainty because of the coronavirus pandemic and the Federal Reserve’s suggestion it will keep rates low for a long time.
“If you expect the economy to grow and interest rates to start to rise, then banks are very compelling,” said Fred Cannon, head of research at Keefe Bruyette & Woods. “If the economy continues to grow and the Fed is successful at keeping rates very low you probably would be better off in exchanges and the banks that don’t earn all their income from spread lending.”
The leader of the financials pack is trading platform Marketaxess MKTX.O up 46% year-to-date, followed by MSCI MSCI.K, up 32%, and then insurer Progressive PGR.N, up 26%.
In all, eight stocks in the index, which has more than 60 stocks, have shown double-digit percentage gains so far in 2020. Other outperformers include investment managers Blackrock Inc BLK.N and T Rowe Price TROW.O and stock exchanges, Nasdaq Inc NDAQ.O and Intercontinental Exchange ICE.N. Like MSCI, stock index company S&P Global Inc SPGI.N has also been in favor.
On the other end of the spectrum, Wells Fargo WFC.N was leading losses down 60%, followed by Citigroup’s more than 48% year-to-date decline and Lincoln Nationals LNC.N roughly 44% drop.
In all, 47 of the index’s stocks have shown declines in the double-digit percentage range.
Compared to the broader financial sector the bank subsector .SPXBK has fallen 37% so far this year while the insurance subsector .SPXIN has dropped 18%.
While the financial index has risen almost 34% since the market’s March 23 low, this gain compares with a 46% jump from the S&P 500, and an almost 43% gain for the Dow and a roughly 60% gain for Nasdaq.