“An economic contraction in the near term seems remote”, said David Kostin of Goldman Sachs last month. Consumer confidence is at a 20 year high. In addition, market analysts point to the fact that banks have lower valuations compared to the overall stock market, and banks tend to over perform in a higher interest rate environment.
Does size matter? Market experts do mention M&A as one of the reasons to be optimistic about banks, which traditionally favor national banks such as JP Morgan and Bank of America. However, most of the optimism comes on valuations and standard banking trends such asinterest rates and consumer optimism. Among Goldman Sachs’ buy recommendations, there are the biggest players, but they also list Citizens Financial, Key Corp, and Regions Financial. Lastly, across the board optimism for increased dividends makes the banking industry look stable for 2019. As always, external factors such as trade wars, impeachment and political instability are factors sighted that could curb optimism.