In recent times, the financial sector has been showing significant growth with the S & P 500 financial sector advancing more than 16% this year and nearly 4% over the past month. The sector has also seen a jump of 7% during the third quarter, outperforming the overall S & P 500 market. This surge in the financial sector has been attributed to the anticipation of an expected Federal Reserve rate cut later this month, instilling confidence in the U.S. economy’s ability to stave off a potential recession.
Historical data has shown that lower rates tend to give banks a boost. Banks have experienced an average decline of 6% in the week following the first rate cut of a cycle. However, from that low point, the segment has seen an average increase of 21%. This historical trend has fueled optimism in the financial sector and has contributed to the recent outperformance, especially during a challenging period for the overall market where the S & P 500 and the Nasdaq Composite have both seen declines of over 2% in September.
Criteria for Identifying Potential Breakout Stocks
Using the CNBC Pro Stock Screener tool, financials stocks that are well-liked by analysts and expected to perform well in the future have been identified. The criteria for the screener include stocks that are members of the S & P 500 financial sector, analysts maintaining a consensus buy rating, and average analyst price targets implying at least a 10% upside ahead.
Highlighted Stock Picks
Two prominent financial stocks that have made the list are KKR and Wells Fargo. KKR has seen a significant advancement of roughly 40% in 2024, with the average price target suggesting nearly 17% upside ahead. Redburn Atlantic recently initiated coverage on KKR with a buy rating, praising the company’s efforts to diversify its business through acquisitions and growing assets. On the other hand, Wells Fargo has shown an increase of more than 8% in 2024, with analysts expecting nearly 16% upside for the stock moving forward. Deutsche Bank upgraded Wells Fargo to a buy rating, citing an attractive entry point after a recent pullback.
Another financial stock that has caught the attention of analysts is Bank of America, which has surged approximately 15% in 2024. Analysts predict roughly 17% upside ahead for BofA, with Deutsche Bank also upgrading the stock following a pullback caused by Berkshire Hathaway selling the stock.
The financial sector has shown strong growth potential amidst market uncertainties, with several stocks identified as potential breakout candidates based on analyst recommendations and historical performance. Investors should closely monitor these stocks for potential investment opportunities in the evolving financial landscape.