The equity chief at $5.4 trillion investment firm BlackRock says you should be buying bank stocks

Kate moore blackrock

Stock investors and Wall Street analysts are divided when it comes to financial stocks.

While optimistic traders have pushed the S&P 500 Financials Index up 7.4% this year, putting it less than 1% from its bull market high, banks are seeing a disproportionately low number of buy ratings from research analysts.

BlackRock chief equity strategist Kate Moore is firmly in the bullish camp. To her, the financial industry’s lack of popularity amongst analysts is part of its appeal.

And given her stance, it’s likely Moore views the financial sector’s roughly 1% decline on Friday — following second-quarter earnings reports from JPMorgan, Citigroup and Wells Fargo — as an ideal buying opportunity.

In an interview with Business Insider, Moore discussed the low-volatility environment, the red-hot tech sector, financial stocks, and the importance of companies embracing new technology. She also talked about why she’s so high on banks.

Here’s what Moore had to say (emphasis ours):

Financials are still not a particularly well-owned sector. It looks to us like the Street is not even at a neutral position in banks. Because it’s not the most popular trade, and because we can see a sustained improvement in earnings and shareholder returns, it still looks like a very interesting sector. The performance that we’ve had over the last month feels justified, and that the catch-up was long overdue.

We have a constructive view on the macro, and this is critically important when we think about banks. In a sustained economic expansion, where we have a consistently firming labour market, which should eventually support some wage inflation and help credit demand, we think the Fed will stay on track in terms of normalization. If that’s your belief, you should expect that this modest rate increase that we’re getting will not only be good for the economy but also good for demand and the bottom line of bank stocks.

We find that banks are much slower to pass along higher rates to depositors, so every incremental hike in rates goes directly to the bottom line. We’re also seeing banks getting more conservative about lending. I also feel super encouraged by the stress-test results and the cash-return strategies that we expect banks to pay out. And valuations are not stretched. We’re close to the five-year average for US financial stocks, while other sectors have re-rated.

For me, it checks all the boxes. It has a good macro story. It has a good fundamental story that will improve on the back of the macro, both from a policy perspective as well as for demand for financial services. You don’t have any valuation roadblock. And you have positioning and sentiment that doesn’t look extreme. It’s very hard for me not to like the sector.”