Bank Stocks Are Finally Improving After a Tough 2020
2020 dealt a significant blow to nearly every sector of the U.S. economy, and bank stocks were possibly the hardest hit. While the overall stock market began to improve in the second half of the year, the banking sector continued to suffer.
Concerns over low interest rates and loan losses from struggling businesses created a lot of uncertainty. The result was that bank stock prices did not climb along with the rest of the market.
Bank Stocks Stayed Down
We reported on the situation back in September 2020, and you can see in that post just how dramatically bank stock prices dropped in the first half of last year. In spite of the low values, we began to see a light at the end of the tunnel when bank values began trending in the right direction.
However, these suppressed bank stocks ended up having a negative impact on the valuations of privately held community banks. It has been a difficult reality for a lot of people to accept, and a few of our bank valuation clients were disappointed in their 12/31/2020 valuation as the industry’s price/earnings and price/tangible book value multiples were still depressed at the end of the year.
However, there is finally good news to report.
Bank Stocks are Rising
Q1 2021 has delivered an increase in bank stock valuations, and future valuations will likely benefit from the improvement. Bank stocks have climbed by 51% since Pfizer first released information about its COVID-19 vaccine last November. The chart below shows price/tangible book value multiples for two indices over the past twelve months. The SNL Micro Cap U.S. Bank index includes all publicly traded (NYSE, NYSE American, NASDAQ, and OTC) banks in SNL’s coverage universe with market capitalization of less than $250 million. The SNL Small Cap U.S. Bank index includes all publicly traded banks in SNL’s coverage universe with market capitalization of $250 million to $1.0 billion.
An article in the Wall Street Journal dated November 22 describes the wild ride bank stocks took in just 4 days. On the Friday after the election, the Nasdaq Bank Index experienced its worst performance compared to the S&P 500 since 1987. The following Monday, however, after news broke of a successful vaccine, the same index saw its biggest single-day rebound since 1984!
All the markets needed was a little hope.
The banking sector has been one of the strongest so far this year for a couple of reasons:
- more businesses returning to normal, and
- an influx of spending from stimulus payments.
We understand what a difficult season it has been, but we are confident that things are turning around and settling down. Future valuations will likely benefit from the continued improvement in bank stocks.
We’ll Keep Watching
As always, our team of experts at Southard Financial is keeping a close watch on the markets in order to provide you with the most accurate information. During volatile periods, an appraisal may become stale relatively quickly as evidenced by the fact that our year-end valuations do not reflect this significant rise in the industry’s pricing multiples during Q1 and beyond. In order to have a clearer understanding of your current market standing, you can always schedule to have an updated valuation that will reflect the latest market trends. Schedule your valuation update today.
Tags: bank stocks, COVID-19, pandemic
