This article is written exclusively for Investing.com
Banks have been trading sideways since mid-June, and that trend is unlikely to change any time soon. With inflation low and the Fed's pledge to keep interest rates low for the next few years, it looks like the banks may be in for a tough time. The low interest rate environment is likely to stifle the bank's ability to generate additional income from its net interest income.
Coupled with quarterly results and outlook, which seemed mixed at best, stocks like Wells Fargo, Bank of America and Citigroup will have fallen sharply. Even JPMorgan noted that net interest income would come under pressure in 2021. Based on technical analysis, this could cause stocks to fall even lower in the coming weeks.
Interest rates are historically low. The Fed has noted in its latest projections that Federal Funds interest rates would remain close to zero through 2023. It will make it more difficult for the banks to grow their net interest income. One area that the banks can take advantage of is when interest rate differentials rise and fall. Still, even JPMorgan noted on its conference call that net interest income was likely to fall to about $ 53 billion by 2021 from about $ 55 billion this year. Meanwhile, Wells Fargo saw a 19% year-over-year decline in net interest income in the third quarter.
Wells Fargo
Wells Fargo (NYSE 🙂 is on the brink of a very sharp decline as it fails to secure tech support around $ 22.50 to hold. Currently, the stock is trading at its lowest price since March. If the stock falls below $ 22.50, equity could drop to nearly $ 16.00
JPMorgan
Meanwhile JPMorgan (NYSE 🙂 is struggling too to get ahead, but has done better than Wells Fargo. Still, the stocks are struggling to surpass the resistance around USD 104. If the stock fails to climb above USD 104, it could also face greater losses as it would be the third time it failed at that price resulting in a return to USD 91.50.
Citigroup
Citigroup (NYSE 🙂 also noted that net interest income would decline in the fourth quarter, partially offset by non-interest income. Meanwhile, Citigroup shares are also struggling. Now it is clinging to a tech support level near USD 42.30. A drop below the support would bring the stock down to about $ 39.25.
Bank of America
Finally, Bank of America (NYSE 🙂 doesn't seem to be any better with a stock struggling below the $ 26.25 resistance. Like the others, it faces a bigger loss if it fails to stabilize and stays above the support at USD 23. A drop below that support price could cause the stock to decline to around USD 21.30.
It may take time for the group to come back to life, as the recent economic battle of the coronavirus pandemic has fueled economic growth. With the recovery still underway, it seems unclear when the market will again benefit this group.
In general, banks can benefit only if investors focus on restoring income and profits. future of the company and give the shares higher multiples. After all, the rest of the stock market has seen a tremendous amount of multiple expansion in 2020, why not the banks too.
