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The Federal Reserve announced on Wednesday that it is holding rates steady.
HSBC head of US financials research Saul Martinez joins Market Domination host Julie Hyman and Yahoo Finance Markets Reporter Josh Schafer to examine how financial stocks (XLF) will be impacted, noting that the Fed's decision not to lower interest rates is "benign" for the sector.
To watch more expert insights and analysis on the latest market action, check out more Market Domination here.
Outside of big tech, I mean, financials and a lot of the names in your coverage space have really been at the forefront of the selling action over the past month. I'm thinking of stocks like JP Morgan, Goldman Sachs, Morgan Stanley, all down about 14, 15% over the past month. Of course, those stocks, if I flip to a one year on our board here, have been pretty hot over the last year, right? And I'm curious, do you think they were part of, a little bit of part of the momentum unwind from the market, or is there something materially changing to the fundamental story that makes you not a buyer here?
Yeah, I think, um, there, yes, I think there is some amount of, um, of the stock price reaction being an unwinding of positions that were, you know, an unwinding of, of, you know, the, the outperformance and perhaps some investors, um, you know, um, becoming overweight the sector and, and, I, I think, you know, to your, to, to the question about whether this is, um, fundamentally justified, um, there somewhat because there are certain things that you are already seeing, for example, with a Goldman Sachs or Morgan Stanley, you know, there was a lot of optimism and, and I, and in our view, um, a lot priced in in terms of a capital markets and investment banking recovery, and the beginning part of the year has been slow. And there is, I think there is, um, you know, a, a greater likelihood that the investment banking recovery story is not going to play out to the same degree that we hoped for. I think you will see a recovery. I think you will see growth, but maybe not what is be, what has been, um, expected in, in the marketplace. So I think there is a fundamental underpinning. I think for, for the JP Morgans and, and Bank of Americas and, and city groups, um, I think some of the, the, you know, the, the, the, um, of the downdraft in the stock prices is, is justified in the sense, um, that
again, like the underpinnings of why we are positive, there are maybe are more risks to that view. So like when you look at, um, different scenarios that can play out, is there a higher probability of a, you know, a weaker economy, uh, filtering into, um, you know, the, the, the financial outlook? Yes, I think there is. That said, I, I personally do like the banks here because I, I think that there, the likelihood that we still see higher for longer positive real rates, um, some, you know, economic growth. I still, still think that is a high probability in the base case. And that's, that's a benign scenario for these banks. So I, I, you know, I do think there's a, there's a logic, I guess, to the sell off, but I do think there's value here.
