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Morgan Stanley: financials may do better in 2019 as the Fed backs off
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Loading...The U.S. Federal Reserve is widely expected to temporarily stop raising interest rates in the middle of 2019 — but Morgan Stanley predicts that stocks in the financial sector will still do well.
A rising interest rates environment is typically beneficial for banks because it boosts profitability on loans. But bank stocks in the U.S. have done poorly this year despite the Fed raising rates three times, with a fourth hike expected to come next month.
Morgan Stanley expects the Fed to take a break from raising rates in June next year.
"The irony is that financials didn't do well this year when rates are going up, it may be the case that financials do better in 2019 as the Fed backs off," Mike Wilson, Morgan Stanley's chief U.S. equity strategist, told.
"The financials figured out that the Fed was tightening too rapidly and so rates were going up, sure, but they realized that that was going to lead to slower growth. Now, if the Fed pauses, financial stocks may actually sniff that out and say 'hey, that's a good thing' and they may actually outperform in 2019," he said at the Morgan Stanley 17th Annual Asia Pacific Summit in Singapore.
It explained that the call for an outperformance in financial stocks is partly due to the sector's relatively cheap valuation compared to others. Some banks also have the ability to control costs better than companies in other sectors, which would allow them to register better earnings.
Share prices of major U.S.-listed banks have recorded losses so far this year: Citigroup was down 14.72 percent, Wells Fargo declined by 12.33 percent and Bank of America fell by 6.03 percent. J.P. Morgan Chase bucked the trend with a 2.6 percent increase.
Source: CNBC
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