July 2020: When will money flows come to bank stocks?

One way of answering this is, when covid uncertainty declines and “growth” rotates to “value”.

Another answer is, it’s already inside the banks, as shown below, and will be dispersed in a few ways: 1) As clients find uses for their deposits (like buying S&P 500, bonds, or capital spending), 2) as loans, and 3) as return of capital to shareholders. Several banks are making preliminary predictions of returning greater levels of capital to shareholders by 4Q. Some, such as Bank of Butterfield (NTB), Waterstone (WSBF), and Spirit of Texas (STXB) are repurchasing shares today.

January 2020: A bank-focused brokerage firm recently suggested a dramatically lower cut-off for Russell 2000 inclusion than most expected for 2020. Bear in mind banks added to the Russell 2000 outperformed their benchmark by 34% in the six months prior to announcement during 2014-2019. This effect seems only likely to intensify – index investing is increasingly de rigeur, while active managers often charge too much to outperform.

Investing ahead of Russell inclusion is a central theme within client portfolios.