The United States economy had enjoyed a decade of prosperity heading into 2020. However, the COVID-19 pandemic and the subsequent lockdowns now threaten to plunge the US and world economy into a full-blown depression. U.S. banks have warned that earnings will take a big hit. Should investors look to buy-the-dip as states seek to reopen, or avoid U.S. bank stocks altogether?
JPMorgan Chase (NYSE:JPM) stock has dropped 34% over the past three months as of close on May 11. Shares are now down 11% over the past year. Its first quarter profit fell well below analyst expectations.
Moreover, the bank has warned that borrower defaults could significantly worsen going forward. The stock last had a favourable price-to-earnings ratio of 10 and a price-to-book value of 1.2. Moreover, it offers a solid 4% dividend yield.
Bank of America (NYSE:BAC) has also seen its shares fall 34% in a three-month span. The stock is down 21% from the prior year. In the first quarter, the bank saw its profit decline 45% from Q1 2019. It has set aside more loan-loss reserves, mirroring JPMorgan’s moves.
Meanwhile, the bank has said that lower interest rates will weigh on its margins in the near term.
Shares of Bank of America last had a P/E ratio of 9.2 and a P/B value of 0.8. The stock also possesses a more modest dividend yield of 3.1%.
Banks stocks will continue to encounter volatility in this environment, but investors with a long-time horizon may want to consider jumping in right now.
