It’s been a whirlwind of a year, or two. We’ve seen economic downpour’s reminiscent of history’s bleakest periods, borne witness to the rise and ultimate demise of pandemic powerhouses like Zoom and Peloton, all whilst waiting for the next news update that could turn it all around again. There’s no doubt about it, the world as we know it has profoundly changed; and a ‘new normal’ lingers behind the economy as we pine for how things used to be not just two years ago…In the global economies across Europe and the US, cities became ominous ghost towns and banks sat as apocalyptic hallmarks of a world with no interaction.
As societies plunged into lockdown, consumer spending was the next to follow suit, followed shortly after by record unemployment levels. In the US, GDP dropped by over 5% in the first quarter of 2020 – the largest drop since the last quarter of 2008 – or, as you might remember it more vividly, the Great Recession. As common sense dictates…less liquidity in the economy means that many struggled to pay the mortgages, loans, and payments on credit cards that banking institutions rest upon. In a further nudge towards the cliff-edge, interest rates were slashed from the Bank of England to the Federal Reserve – and this is where it gets interesting for investors looking to start 2022 with a growth-ready portfolio.
Buy The Dip. The phrase that has initiated countless price surges, retail-hype, and renders a pullback or a retracement as good as a bullish green light rather than a bout of angst. Well, it’s certainly something you might hear behind the walls of JP Morgan and Goldman Sachs lately; as banking stocks across the US sit in good stead for a 2022 resurgence. Not only has the financial sector armored itself in the face of the latest Omicron variant, navigating a post-covid landscape might seem feasible alongside rising interest rates. Banking stocks traditionally tend to relish rising interest rates – and with constant media whispers, investors that hold banking stocks could be in for a fruitful year.
This being said, economies are not in the clear yet – bearish sentiment is still the governing narrative when it comes to anything Covid. On the news of a death in the UK from the Omicron variant last week, London markets followed 2020 patterns with a distinct sell-off in consumer-facing companies. Companies are currently seesawing over profitability and consumer confidence – hence an adaptation in public sentiment is arguably overdue.
“I don't think there's any going back to the pre-COVID world. We're just going to get mutations through time and that's going to change the way people operate in the economy. That's just reality.”
Mark Arnold, CIO, Hyperion Asset Management, Brisbane
So what does 2022 mean for banking investors? Adaptability, growth, and positive market sentiment. Banks are well equipped for drastic change should Omicron continue to threaten economic growth. Large, investable financial institutions will be set for a strong year, bouncing back from instability and low-interest rates. Lastly, the importance of the ‘new normal’ can’t be stressed enough – as market sentiment starts to embody that, spending should return to normal and financial investors should be left with a healthy portfolio once again.
