Sometimes the best-planned column can be upended by a surprisingly buoyant market. That was the case this past week when a dovish Federal Reserve caused a surge in shares in
KeyCorp
—a large enough one to make us reconsider a recommendation to buy the stock.
It was quite the turnaround. Until Tuesday, Key, which was down 20% on the year, had been one of the worst-performing banks in the S&P 500 index. The bank suffered mightily from the selloff that roiled regional bank stocks earlier this year, with shares nearly cut in half at one point. But in recent months, Wall Street has warmed to the stock. Bond guru Bill Gross was a buyer in October, enticed by a dividend yield that was north of 7% and the fact that shares were trading slightly below book value. As of this past week he was still a fan of the stock, a spokesperson confirmed.
Then Wednesday happened. On that day, the Federal Reserve released its Summary of Economic Projections, or dot plot, which signaled there would be three rate cuts in 2024, and that was enough to send markets higher. A lot higher. The Dow Jones Industrial Average notched an all-time high, and bank stocks were especially strong, with the
SPDR S&P Regional Banking
exchange-traded fund gaining 9.9% on the week through Thursday.
Previously unloved stocks gained even more. Key rose 11.4% on the week through Thursday’s close, finishing at $14.77 a share, well above the $13.52 average price target, according to analysts surveyed by FactSet. With the Fed’s nudging, investors apparently felt confident enough to buy Key’s bull case and then some.
Peter Winter, an analyst at D.A. Davidson, had been one such bull, telling Barron’s on Tuesday that Key was one of his top picks for 2024. The bank had struggled with weakening margins, but he was confident Key would be able to keep expenses flat. He was also optimistic that a return in investment banking activity—up from depressed levels in 2022 and 2023—could be a catalyst for shares. Both of those things could still be true, but he had a $14 price target on shares—bullish for Tuesday but leaving no upside by the end of the week.
Other underperforming banks got special treatment as well.
Comerica,
Citizens Financial,
and
Zions Bancorporation
were among the most punished banks this year, and they notched the biggest gains. The year’s top performer,
JPMorgan Chase,
barely budged.
There may still be room for banks to run in this nascent rally, but we’d feel better letting the dust settle before jumping in.
Write to Carleton English at [email protected]
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