Predicting the trajectory of bank stocks in 2023 has been incredibly challenging. The unnerving sight of bank runs just a few months ago was a stark reminder of the unpredictable waters this sector is treading. Though high bond yields have cast shadows over stock markets globally, the financial sector has been hit the hardest, prompting investors to think about bank stocks to sell.
After a significant move by Standards and Practices (S&P) 500 Global Ratings, which downgraded five regional banks, it’s evident that the waters are murkier than they appear now. Amidst these tremors, rising rates have instigated banks to amplify interest on deposits to rival treasuries. This scenario and an absence of a concrete assurance from the Treasury Department on full deposit insurance have sparked a tug-of-war. Larger banks reap benefits from the chaos as deposits fly away from regional banks.
First Horizon (FHN)
First Horizon (NYSE:FHN) can’t seem to catch a break this year. The Memphis-based regional bank felt the ripple effects of the banking crisis, watching its shares take a monumental beating, down more than 45% year-to-date. As the Federal Reserve swoops in with stabilization measures for banks, whispers of additional regulations are evident. The looming shadow of economic downturns has prompted many banks, including First Horizon, to contemplate cost-cutting and consolidation.
Adding salt to the wound, Toronto-Dominion Bank’s (NYSE:TD) much-talked-about First Horizon acquisition hit a brick wall, thanks to regulators. Although the hiccup arose from TD’s anti-money-laundering transgressions, First Horizn bore the brunt. Shares of First Horizon tumbled while TD stock ticked in the green. The current financial climate has put regional banks such as First Horizon in the crosshairs, spotlighting their vulnerabilities in these testing times.
KeyCorp (KEY)
KeyCorp (NYSE:KEY) is apparently dancing on the edge of financial uncertainty. Luring investors with a hefty dividend yield of roughly 7.4%, wagering on it may appear enticing at first glance. However, delve deeper, and you’ll find that its eye-catching yield signals inherent risks. The bank’s underwhelming financial strength rating of two out of 10 and a meager profitability rank of four out of 10 from Guru Focus raises red flags, hinting at it being a dividend trap.
Its recent earnings statement is a cascade of problematic metrics, pointing to turbulent waters ahead. Revenues took an 11% hit in the second-quarter earnings release, with both interest and noninterest income facing significant declines. Moreover, the bank witnessed a staggering 50% drop in income from continuing operations for the quarter. Even more troubling was the 7% negative earnings surprise. The stock is down more than 34% year-to-date, and I expect the firm to continue shedding more value ahead, given the negative sentiment in the banking sphere.
S&P Regional Banking ETH (KRE)
The recent upheaval labeled in the regional banking scene has effectively sent shockwaves through the global financial markets, pushing the values of entities such as the S&P Regional Banking ETH (NYSEARCA:KRE) into a downward spiral. KRE stock has dipped more than 24% year-to-date and more than 27% in the past six months.
KRE, designed to grant investors broad access to the United States regional banking scene, is far from ideal in these turbulent times. Additionally, the annualized volatility associated with KRE stock stands at 36%, almost 100% higher than the sector median.
The past few months have unveiled a concerning trend in the U.S. banking landscape: diminishing total bank deposits attributed to quantitative tightening. While some investors might be tempted to view KRE as a lucrative value opportunity amid its fall, it’s crucial to remember the lingering threats in the U.S. banking sector, foreshadowing potential financial pitfalls. This and the other stocks we mentioned definitely earn their spot on this list of bank stocks to sell.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines