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The Financial Crisis Is Officially Over – And One Sector’s Stocks Are on the Rise

Last Updated September 23, 2020 1:23 PM
Laura Hoy
Last Updated September 23, 2020 1:23 PM
  • Financial stocks hit an all-time high on Thursday for the first time since the financial crisis.
  • The NYSE also rocketed higher, signaling more gains ahead in 2020.
  • Financial and bank stocks look like a good bet to enjoy another bull market next year.

The S&P 500 Financials sector made its way to an all-time high of 510 on Thursday for the first time since 2007. More than a decade after the housing bubble crippled US financial markets, it seems bank stocks have finally made a full recovery.

Strong performance among financial stocks helped boost the overall market as well, with the NYSE running up to 13697.41, its highest level in nearly two years.

Is Another Cliff Coming for US Stocks?

Seeing financial stocks regain their footing after 12 years is a triumphant moment for US markets, but it begs the question of whether or not history will repeat itself.

Many question whether the current market is sustainable, arguing it’s largely been propped up by the Fed’s quantitative easing. Without that crutch, skeptics worry stocks can’t sustain their upward trajectory.

financial crisis over, stock market outlook
Source: Twitter 

Bearish analysts have sounded the alarm about the housing market in recent months once again, and predicting market bubbles has become a favorite pastime among finance gurus.

Still, strong economic data and continued market success have the bulls predicting another strong year in 2020.

Will History Repeat Itself?

NYSE, financial stocks
This chart suggests the stock market will trend up next year. | Source: Ryan Detrick/Twitter 

If historical performance is anything to go by, the bulls may be right.

Each of the past eight times the NYSE climbed to new highs, the market rose by 3.7% or more in the subsequent 12 months. Six-month returns were positive in seven of the eight instances.

That suggests that despite worries about inflated valuations and political uncertainty, 2020 is likely to deliver another bull run.

A Bumper Year for Bank Stocks in 2020

financial sector outlook
Next year could be a big one for bank stocks. | Source: Matej Kastelic/Shutterstock.com

Indeed, 2020 could be a bumper year for investors. With a Chinese trade deal seemingly all-but-completed and the Fed unlikely to start raising interest rates anytime soon, conditions look favorable.

Art Hogan of National Securities is expecting double-digit returns  from the S&P 500 next year as calm and certainty return to Wall Street.

Financials, he said, will be a top performer alongside biotech and med tech. He’s not alone, either. Of all of the brokerages tracked by CNBC, every one is betting on financials in 2020. 

Of course, that may sound counterintuitive when you consider how low the Fed has taken interest rates. But the negativity surrounding the Fed’s cuts is likely already priced in, making the sector a good value  bet according to Bank of America analyst Savita Subramanian. 

While the Fed doesn’t appear to be considering a rate hike in the near-term, banks will likely benefit from the fact that the bank isn’t going lower either. The past few years have been trying for banks as they struggled with declining interest rates and thus, lower profitability. 

As 13 of the Fed’s 17 members said they intend to keep rates constant  through 2020 and the other three foresee a rate hike, the environment for bank stocks looks promising.

Why Bank Stocks Are Insulated Against Political Uncertainty

Of course, the stock market will have to contend with some political uncertainty in 2020 as the election heats up. While most agree that a Trump victory would be the best thing for stock markets, a Democrat candidate may not be quite as detrimental as Wall Street initially predicted.

Healthcare stocks, which are also seen rising into the new year, could be hurt by a Democrat candidate as many are threatening to overhaul the industry completely. With that said, even the most progressive candidates agree that a gradual approach  to revamping America’s healthcare is in the nation’s best interest.

Bank stocks, though, look largely insulated from the political drama. As the industry is already heavily regulated, a candidate from either side of the aisle is unlikely to upset the group much. That makes the financial sector a good place for investors to avoid the election drama.