Why Major Banks May Have Sold Off Too Much Over Oil, Market and Economy

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The market volatility and financial market uncertainty has been hard on many sectors. The first fall-guy sector is of course oil. But then you have to think about the financiers for the energy sector and for the world’s emerging markets. The major U.S. banks, and foreign banks for that matter, have been gutted in the market carnage seen in 2016.

24/7 Wall St. wanted to evaluate how badly off the banking sector has been. We not only took a look at how much they are down from highs, but at how much each of the four money center banks would have to rally to hit a new 52-week high. That also was compared with their current consensus analyst price targets and other data regarding dividends and additional color.

Calling a bottom is almost never good idea, particularly in extremely volatile markets. And for that matter, this is not a call that bank stocks have bottomed. That being said, this selling pressure on the banks up to the last attempted recovery has started to feel extreme — maybe too extreme. A chart view of the major banks below shows where these banks bottomed out in the January selling climax, and it will be interesting to see what happens if there is a retest for support and how they act if that occurs.

The financial markets may have been cruel to the big banks and financials so far in 2016. Still, even wondering if these have become too oversold, the markets are still nowhere close to having priced in another financial crisis. The markets are trying to absorb the risks of gradual Federal Reserve rate hikes, quantitative easing in Japan and Europe, oil default risks, weak emerging markets, high-yield bond default risks, sovereign wealth fund selling pressure, stock and bond market volatility, and just about everything else you can throw on the floor.


Bank of America

At $13.29, Bank of America Corp. (NYSE: BAC) would have to rally more than 30% to hit its 52-week high of $18.48. Its consensus analyst price target is currently almost identical to its 52-week high at $18.43. The dividend yield is still rather low at 1.5%, so investors will be looking for its dividend hike to be approved in its Comprehensive Capital Analysis and Review (CCAR) for the Federal Reserve, which was a disappointment for the Bank of America dividend in 2015.

Bank of America shares were already down a sharp 17% so far in 2016 ahead of Tuesday. A recent analyst upgrade was too big to ignore. Mike Mayo, the esteemed banking analyst at CLSA, raised his rating to Outperform from Sell and raised his target to $16.00 from $15.00. That may be under the consensus target by some amount, but Mayo had been consistently bearish on Bank of America.