To The Moon

Banks Stocks soared Monday, as positive news about earnings from banking powerhouse $JPMorgan Chase(JPM)$ and comments from President Joe Biden about the possibility of lifting some US tariffs on China boosted sentiment on Wall Street.

Dow component JPMorgan Chase surged 6%, The $SPDR S&P Bank ETF(KBE)$ was up 3.3% in midday trading, outpacing the1.7% gain in the S&P 500 index, The Dow gained nearly 620 points, a gain of about 2%.

Fellow financials $Goldman Sachs(GS)$ , $American Express(AXP)$, and $Visa(V)$ were among the other big winners in the Dow . $Citigroup(C)$ , $Bank of America(BAC)$ , $(Wells Fargo (WFC))$ and$Comerica(CMA)$ were also S&P 500 leaders.

Investors took a break from selling in May and going away, for one day at least.

Blow content shows the performances of bank stocks in a strong or a reccession economy, how banks strive to maintain growth in a depression, 7 bank stocks undervalued, key metrics to distinguish good bank stocks.

Bank Stocks Performed Different in Strong or Poor Economies.

Usually, Banks can be a great place to invest, especially in strong economies. When consumers are confident to spend and unemployment is low, profits tend to grow and loan defaults are typically kept in check.

On the other hand, banks tend to perform quite poorly during recessions and other uncertain times. In investing terms, this means banks are a cyclical business.

There are a few reasons banks tend to perform poorly during recessions and other difficult economic climates:

For one thing, they could face a wave of loan defaults if unemployment rises or war happens to destory the business environment.

Second, consumers tend to pump the brakes on spending during recessions, which leads to lower demand for loans.

Finally, interest rates tend to decline during tough times, which is bad news for banks' profit margins.

Two of them seems to be experienced by now, The economy is far from being out of hot water, with continued higher-than-typical inflation expected, banks will certainly feel the pain as their traditional revenue streams slow to a trickle. Even though the FED is raising interest rates, investors seem more worried about surging inflation and rate hikes eventually leading to a slowdown in the housing market and broader economy. 

That‘s why bank stocks have lagged in recent months After a big year in 2021 and a hot start to 2022. 

Banks are looking at a long road of low interest rates ahead, not just because of the current economic crisis but also because the U.S. federal funds rate has been on a general downtrend since the 1980s – that's four decades of capital structures slowly changing to allow increasingly higher leverage, which necessitates lower interest rates to avoid economic collapse.

The ones that cannot find alternative sources of profitability are not likely to be seeing growth in their revenue or earnings any time soon.

2 major businesses helping large banks maintain their growth under recession

Not every bank turned to bad situation, some banks have made good performance by relying some businesses. 

Some big names in the sector, such as JPMorgan Chase & Co. (JPM, Financial) and Goldman Sachs (GS, Financial), are looking to new sources that could bring in cash flows, expressed not certain to see decreased earnings in the years ahead.

They are develping in the following 2 businesses to make money:

1). Investment banking services

Quite a few banks are seeking to grow their investment banking services grows, which typically bring in higher cash flows than traditional banking activities, especially in times of market turmoil when there is more transaction volume.

All of the "Big Six" U.S. bank majors have at least some investment banking activities, especially $Goldman Sachs(GS)$ and $Morgan Stanley (MS)$, for which investment banking represented 20% and 16% of net revenues during the second quarter. JPMorgan is also aiming to grow its investment banking arm, as are$Bank of America (BAC)$, $Citigroup (C)$, and $Wells Fargo (WFC)$.

2). Trade private companies shares

On top of investment banking in publicly traded securities, JPMorgan is planning to take it up a notch by offering customers the ability to trade shares of private companies.

In the past, due to the difficulty of trading the shares of private companies as well as the lack of publicly available information on their financials and inner workings, investors – especially individual investors – were not really interested in this type of security.

In an interview with CNBC, Chris Berthe, the global co-head of JPMorgan's cash equities trading, attributed the newfound interest in private company stocks to the low-yield environment.

However, at their core, these are the main ways that banks make their money. which is also the direct reason why some bank stocks rose sharply on Monday.

 What's more, despite the recent volatility, below are some bank stocks remain undervalued. 

• $JPMorgan Chase(JPM)$ 'sMay investor day event should provide investors with much-needed updates on long-term financial outlook, which Poonawala says could be a bullish catalyst. Bank of America has a "buy" rating and $155 price target for JPM stock.
• $M&T Bank(MTB)$ is a commercial-focused U.S. regional bank that operates in eight states in the Northeast and Mid-Atlantic region. M&T is the only bank on this list that has generated a positive return so far in 2022, gaining 8.4% year to date. Poonawala is projecting $2 billion per quarter in net growth for the bank's securities book through the end of the year. In addition, Poonawala projects spread revenue growth of 48% in 2022 and 26% in 2023 as interest rates rise.
• $Bank of America(BAC)$ had one of the best first-quarter earnings reports among large U.S. banks, and it reported a 52% decline in net loan charge-offs in the quarter.
• $U.S. Bancorp(USB)$ had a "decent" first quarter, which included accelerating loan growth and an improved revenue outlook. U.S. Bancorp's merchant acquiring and commercial payments businesses are positioned for a rebound in 2022.
• $PNC Financial Services Group Inc(PNC)$ Financial Services is one of the five largest U.S. banks by deposits and has a diverse business model that includes traditional banking, asset management and commercial mortgage services. PNC Financial Services is one of the five largest U.S. banks by deposits and has a diverse business model that includes traditional banking, asset management and commercial mortgage services.
• $Fifth Third(FITB)$ 's profitability outlook is improving, and its diversified, fee-generating product portfolio makes the stock an attractive value for investors.
• $SVB Financial Group(SIVB)$ is the parent of Silicon Valley Bank, a commercial bank that specializes in technology, life sciences, wineries, and private equity and venture capital firms. CFRA analyst Alexander Yokum says rising interest rates will boost $SVB Financial Group(SIVB)$ 's net interest margins by between 0.35% and 0.4% by year's end, and the bank's credit risk profile remains strong.

Finally, share some Important metrics for you to distingish good banking stocks:

Cite from Motley Fool

The above contents are compiled from the public information. Hope it will be more helpful for you to understand the bank stocks.