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Quarter-End Insights

Our Outlook for Financial-Services Stocks

A further rally in financial stocks is unlikely without continued economic improvement.

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  • With a sector price/fair value estimate ratio of 90%, few opportunities exist in the risky financial-services sector, which has the highest uncertainty rating of all the sectors we cover.
  • High refinancing volumes are boosting mortgage-related businesses, but such support is likely to be relatively short-lived.
  • Macro concerns remain at the forefront, with troubles brewing in Europe and Canada, and low rates damaging profits in the United States.

Over the past few months, financial-services stocks continued to perform well, with the aggregate Morningstar price/fair value estimate ratio for stocks in the sector rising to 90% from 87% over the summer. As we pointed out last quarter, most bargains are accompanied by risk, and many will require a further macroeconomic rebound in order to demonstrate their full potential earnings power.

Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.