Global Growth On The Rise And Banks Are the Source Of Funds
Currently, several indicators are flashing that global growth is for real and 2013 could be another great year for bank stocks. For instance, Alcoa (AA) stated on its recent earnings conference call that the outlook for Chinese growth is much improved. Furthermore, global growth bellwether Danaher Corp. (DHR) predicts higher than expected core revenue growth. This is good news for global money center banks as they are the source of funding for the growth. This is why you always hear you can't have a real bull market rally without the financials starting off the party. The uptick in the housing market and the steepening of the yield curve due to demand for long-term capital are strong buy indicators for bank stocks.
Major Amounts Of Cash Still On Sidelines
A substantial amount of cash has flowed into stock mutual funds recently. Over the last few weeks approximately $20 billion has flowed in. Nevertheless, this is just the tip of the iceberg with $400 billion in outflows over the last four years. With the Dow near historic highs, the probability of more money coming off the sidelines is great. This should propel the bank stocks higher.
Stress Test Results Will Be A Significant Catalyst
Most of the U.S banks have fortress balance sheets. The Fed's stress test results are due out in the next few weeks. The major money center banks' success at cutting costs and improving their capital positions should bode well for the underlying stocks. I posit many will announce share buyback programs and increased dividends. For instance, Guggenheim's Marty Mosby says, Bank of America and Citigroup (C) both have 30% upside this year. Big dividend hikes, BAC to $0.05 quarterly from $0.01 and Citigroup to $0.25, should be a major catalyst. Last year the bank stocks soared in short order on the heels of the stress test results.