Large-Cap Bank Stocks Have Fallen Over the Past Month. 3 Reasons to Buy the Dip
Bank stocks have been ripping higher all year after the sector proved that its credit quality could withstand the tough conditions brought on by the pandemic. Investors have also been optimistic about the reopening of the economy. But the sector has pulled back some recently, with the KBW Nasdaq Bank Index, which includes 24 of the largest bank stocks, down nearly 8% over the last month.
The big four traditional banks -- JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC) -- are down anywhere from about 6% to 12% over the past month. While bank valuations had started to get high and investors have been perplexed while trying to figure out inflation, I see this recent dip as an opportune time to buy. Here's why.
After recently releasing its annual stress testing results, the Federal Reserve lifted its restrictions on bank capital distributions, which have been in place in some capacity for roughly a year. During the early months of the pandemic, the Fed banned share repurchases and limited dividend payouts of large banks to ensure they maintained strong capital levels heading into uncertainty. At the end of 2020, the Fed eased some of its restrictions, allowing banks to pay dividends and conduct share repurchases based on their profits in 2020. But now, the limits have been removed and banks have much greater autonomy over their capital distributions.
Source Fool.com
