Markets React and Opportunities Are Created
Markets have a way of over-reacting to news that can be frustrating to investors. But those same reactions can often provide opportunities for investors who maintain the right perspective.
The recent indication from the Federal Reserve Board that it would likely not increase interest rates in the foreseeable future affected financial stocks quite severely, with the financial sector falling nearly 5% on the news.
Regional banks were hit especially hard, with the S&P Regional Banking ETF losing 9.5% in the week. The four regional banks covered in the SmallCap Informer were not immune to the sell-off.
However, our approach in selecting these regional banks in the first place focused on discovering businesses that could perform well in a low-interest environment, with net interest margins above average.
Our thinking is that banks that can outperform peers in a low-rate environment would reap bigger rewards once rates began to move upward. If that happens later rather than sooner, well, these banks are likely to continue to deliver solid results in the interim.
Reprinted from the SmallCap Informer, April 2019.