Stressed, financially

From earnings results we have seen so far, 2018 was a good year for U.S. banks’ net-interest margins (NIMs), which were buoyed by the Fed’s four rate hikes. Despite this, Financials have under performed Utilities as yields have fallen. More recently, the under performance of Financials has been even greater than what the falling yields would suggest. Investors are pricing in lower yields and a deteriorating outlook for Financials. The timing of this is interesting. Earlier this week, minutes from the Federal Reserve’s March meeting were released, suggesting—somewhat confusingly—that the Fed could be “flexible” in its “patience”. The message is mixed, but it appears that the Fed is trying to convey that rates could rise while they stay accommodative. Investors remain unconvinced and are betting that cyclical conditions continue to deteriorate.



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