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Beat-up bank stocks rally 25% or more in single month

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Beat-up bank stocks rally 25% or more in single month

Bank stocks were a favored punching bag when equity markets sank as the COVID-19 pandemic triggered shutdowns. Now that some U.S. states are re-opening and green shoots have appeared, bank stocks are outpacing the broader markets on the way up, too.

Among banks traded on major exchanges and with significant volume and market capitalization, the median gain was 12.0% for the one-month period ended June 12. The S&P 500 gained 6.0% over that time. CIT Group Inc. posted the largest gain, shooting up 62.3% in a single month. Cadence Bancorp. was not too far behind with a one-month gain of 49.7%. However, both stocks still lag peers on a year-to-date basis and trade well below book value at 46.8% and 56.0%, respectively.

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The outperformance of weaker stocks fits broader trends in the recent market rally, said Kevin Philip, managing director for Bel Air Investment Advisors, an investment advisory firm. He said many investors have been surprised by the rally and have focused on lower-valued stocks with the hope of "catching up" on the gains they had missed. Further, he said there appears to be evidence that quarantined individuals have made a hobby of investing with their newfound free time.

"There seems to be a tremendously large increase in small investor appetite in a way that feels more like gambling than investing," Philip said.

In addition to Cadence, several other banks with exposure to the oil patch experienced share price gains of greater than 25% over the last month, such as BOK Financial Corp., Hancock Whitney Corp., Comerica Inc. and Texas Capital Bancshares Inc. Volume has been high as well, with daily volume spiking both when markets crashed in March and during the recent rally.

Bank stocks are still down year-to-date both on an absolute basis and relative to broader index performance. The recent rally has been driven by a stronger economic outlook; a steepened yield curve; and robust, diversified balance sheets, wrote Peter Winter, managing director for Wedbush Securities. He suggested that bank stocks could jump further depending on the June 25 results from the Federal Reserve's stress-testing and capital planning exercise.

"If all the regional banks pass with no dividend cuts (which is what we expect), this would represent a vote of confidence by the Fed reinforcing the view that banks are well-positioned to handle this downturn given all the work to de-risk the loan portfolio and the significant increase in capital," Winter wrote in an email.

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