Banking on gravity
Bank stocks look overpriced on the fundamentals, but external forces keep them buoyant. What will it take to prick the bubble?
The thing about widowmaker trades is that at some point, you’re right. But you might just be broke by the time that happens.
This is the conundrum facing bank share investors in 2025. It’s not just Commonwealth Bank which walks and quacks like a widowmaker — it’s the whole bank index.
At current prices, banks appear to have no visible means of support — yet this has been the case for close to 18 months. As our chart of the week below shows, December seemed to signal the start of a correction, with all major banks down notably. But as 2025 kicked off, they rebounded yet again.
On fundamentals, banks shouldn’t be this strong. They are, essentially, a leveraged play on economic growth. If growth is weak, as it currently is, bank earnings should be modest.
