Banks to buy in 2024, not MS, GS, JPM but UBS?
As we entered solar calendar 2024 and speed towards lunar calendar 2024, did you ask yourself whether you had “make hay while the sun shines” last year? I have been pondering over the same question myself the past weeks.
Before I reveal my cards, here are the Top 3 events (to me) that shook US stock market in 2023.
(1) US bank crisis - March 2023.
The collapse of Silicon Valley Bank, and two others, almost in succession (caused by a combination of risky investment strategies and rising interest rates), was a major shock to the US financial system.
Silicon Valley Bank: Collapsed on March 10, 2023. 2nd largest bank failure in US history at the time.
Signature Bank: Collapsed on March 12, 2023. 3rd largest bank failure in US history at the time.
First Republic Bank: Collapsed on May 1, 2023. Although not technically in March, its collapse has been lumped together with the March bank run.
It’s been 9 months since the fateful calendar events.
As the financial sector tries to regain some resemblance of normalcy, things will not go back to how it was before the bank run.
(2) Rise of Artificial Intelligence (AI).
When OpenAI introduced ChatGPT to the world in November 2022, I don’t think anyone could have fathomed the accelerated pace with which AI gained traction and made inroads in the IT sphere.
The ascend of the AI-laced IT stocks did not go unnoticed.
In May 2023, Bank of America analyst Michael Hartnett used the Hollywood movie (of the same title) when he commented on the 7 giant IT-stocks; officially birthing the new terminology but also charting the rise of these 7 stocks throughout 2023.
The Magnificent 7 have made strident gains in 2023:
Apple Inc: +53.94% gain.
$Microsoft(MSFT)$ : +56.96% gain.
Alphabet: +57.11% gain.
Amazon Inc: +77.04% gain.
Tesla: +129.68% gain.
Meta Platform: +183.73% gain.
Nvidia: +245.95% gain.
With 2023 firmly behind us, how should we navigate the new 12 months, when it comes to the Magnificent 7?
(3) Fed Funds rate
Did you guess this as one of your considered events for 2023?
After hiking interest rates a total of 7 times in 2022, US interest rates have gone from:
0.25% (1st hike in March 2022)
4.25% (7th hike in December 2022).
Investors were “trained” to be wary of the central bank, its antics on the run up to each of the FOMC meeting in 2022 and 2023.
Throughout 2023, the Fed’s decisions on interest rates continued to be the ultimate market mover.
Early on (H1 2023), concerns about inflation fueled expectations of aggressive hikes, causing volatility.
Later (Q4 2023), hints of a potential "pivot" towards slower rate increases sent markets soaring, only to be dashed by hawkish pronouncements again.
The constant uncertainty kept investors on edge.
My viewpoints: (mine & mine only)
Using $JPMorgan Chase(JPM)$, US #1 bank for illustration purpose.
On 10 March 2023 when SVB was officially shutdown by regulators, JP Morgan was at $133.65.
It has already been sliding prior to SVB shutdown on 10 Mar 2023. (see above)
As long as one does not compare it against AI-related stocks, it will not look too badly.
Top US financial institutions YTD performances:
JP Morgan: commendable +25.89% gain, Impressive on its own merits.
Wells Fargo: +17.78%. Credible performance put up.
Citibank: +12.36% gain.
Goldman Sachs: +11.42% gain. GS has put in effort a hardy fight despite vacillating between being investment banking or consumer banking; its performance has been hardy.
Morgan Stanley: +8.78% gain in 2023; despite little to no M&A activities.
Bank of America: +0.48% gain. It too has made too many unforced errors.
All is not really well down yonder. Agree ?
Regulator’s request for an even higher capital requirements (deposits) to be parked with them is still work-in-progress.
It is facing a lot of resistance from bigger banks because the opportunity costs mean there will be “less” money available for them to generate net interest income.
This “possible” new ruling has been postponed till 16 Jan 2024, where the decision to have the rule legislated needs to be finalized.
Personally, I do not think the “bigger” financial institutions are out of the woods yet.
Should the new rule come to pass, what are the implications to:
Banks’ earnings in 2024 and beyond?
Businesses (that requires loans / working capital) overall, leading to US economy’s path to recovery?
A lot is at stake.
I still believe strongly that bank has an integral role to play in the workflow of a country’s financial activities.
While keeping an eye on these banks, I have the other eye on Swiss bank - $UBS Group AG(UBS)$ instead.
I have a hunch that 2024 might be the breakthrough year for this merger bank. I have a “pick” post on UBS out on Sat, 30 Dec 2023. Click here ! to read, give a like and help to repost ok. Thanks.
In 2023, UBS bottomed on 17 Mar 2023 at $18.20; no doubt spooked by the banks’ run in the US.
Since July 2023, its price has been gaining grounds steadily on an upwards trend (see above).
There is “healthy” pull back along the upwards trajectory.
Comparing its vitals against the bigger boys $JPMorgan Chase(JPM)$ and $Bank of America(BAC)$, there is clearly value in this hidden jem of a stock. (see below)
***Very Important. UBS will not be subjected to the “additional” capital requirements like all US bigger banks. This translates to more money available for loans to businesses.
With a rise in the US 10-year Treasury yield back to 4.05% (on Fri, 05 Jan 2024), this would likely put downward pressure on the US stock market and complicate the Fed's rate-cutting plans. (see below)
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Do you think bank stocks are the way to go for 2024?
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