Dividends and US bank stocks falter as recession worries take hold

Most of us think about growth for personal, professional and whatever community we live in. Personal often includes education of one sort or another. Professional includes making plans to include growth in the company and the role you play in the company. The community we hope there are projects which makes the community we live in better. A number of years ago, the author saw a display about the City of Detroit – one year they issued no building permits, fortunately that has changed for the better. For many of us, we are bias towards growth, it is hard not to find growth in Wall Street press releases.

In an article by Lewis Krauskopf of Reuters, bank shares were down in December as worries about recession and weakening profit margins dull the industry’s appeal.

The S&P 500 bank index was down 11% including Bank of America down 16%, Wells Fargo down 14% and JPMorgan Chase down 6%.

Matt Maley, chief market strategist at Miller Tabak said Bank stocks do not do well in a recession, as more and more investors are worried about a hard landing.

Banks face a potential double whammy: a recession could hurt loan growth and increase credit losses; higher rates threaten to shrink profit margins in the interest rates paid on deposits eats away at interest earned from loans.

On the other side of the coin is King Lip, chief strategist at Baker Avenue Wealth Management, his firm has been buying bank shares based on their belief the recession will be moderate. At present the S&P 500 bank index trades at 9 times earnings estimates, below its long-term average of 12 times and the roughly 17 times for the S&P 500.

Linking to dividend paying stocks, it is hard not to earn a bank share or two because the large banks are generally profitable companies, but similar to all companies the prices go up and down. If you own the banks, do you buy more or have you sold some? The only perfect answer is looking backwards, but the market looks to the future The wonderful aspect to the stock market is there are reasons to buy and reasons to sell and people come to the conclusion looking at the same data. As an investor for dividends, you ask is the dividend safe no matter if the recession is hard or soft?

There are more questions than answers, till the next time – to raising questions.


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