3 Battered Finance Stocks Set To Rebound In 2019

Despite the growing optimism regarding lesser regulations, improvement in economy and benefits from tax cuts, the performance of the finance sector has been quite bumpy so far this year. The U.S.-China trade war, Brexit-related uncertainty, inversion of the yield curve and the U.S. Federal Reserve’s aggressive stance related to interest rate hikes are some of the major factors that induced volatility in 2018.

As a result, the S&P 500 Index has lost nearly 1% year to date. The S&P 500 Financials (Sector) Index has decreased by 12.7% and the Finance Sector has witnessed a decline of 11.4% over the same time frame.

Notably, while the tariffs imposed on imports from China do not have a direct bearing on the financial stocks, the uncertainty related to the trade war has made investors wary of the performance of the overall economy. This indirectly affects the finance companies as the performance of the finance sector is linked to the nation’s health.

Moreover, British Prime Minister Theresa May’s tentative “withdrawal agreement” with the European Union (EU) failed to get an approval from her own party, increasing uncertainty over Brexit. Thus, the U.K is scheduled to leave the EU on Mar 29, 2019, even if there is no deal, which is likely to have an adverse impact on the global economic growth.

Further, yield curve inversion is bad news for the finance sector. The inversion of the yield curve means long-term rates are below short-term rates. Finance stocks (except REITs) benefit from steeping of the yield curve and the inversion will likely hurt the stocks’ financial performance. Further, many see inversion as an early indication of an impending recession.

Nonetheless, while these headwinds dragged down finance stocks in 2018, the story of 2019 seems to be in the making. The expectation of a peaceful agreement in connection with the trade war, an anticipated pick-up in the economy and favorable operating environment are expected to turn things around for financial stocks.

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