Bank stocks have experienced a sentiment-driven surge since the US election, supported by expectations for higher interest rates. Lost in the exuberance has been a marked deceleration in credit creation.
Total bank loan growth has dropped to nil over the last three months, led by the previously booming C&I category. That is a sign that while businesses are expecting an economic improvement, they are not yet positioning for one via increasing working capital requirements. Coupled with increased bank staffing levels, the growth in bank loans-to-employment, a decent productivity proxy, has also dropped to zero. Importantly, the yield curve steepening trend has taken a breather, which may be a catalyst for some profit-taking.
Bottom Line: Our US equity strategists are underweight banks.
