Why I Like Big Banks in 2021

I like big banks (and I cannot lie). I think 2021 could be a solid year for some of the leaders in banking, especially those that are well-capitalized and well-managed. Here's why.

U.S. Financials had a rough 2020, relatively speaking. The sector was down -1.7% for the year, which is very weak compared to the broad S&P 500 (+18.4) and the Technology sector (+43.8). Financials shares have been dragged by rock-bottom interest rates and a flattish yield curve, but I think some upward pressure on the long end of the yield curve could improve the profit picture for major banks in 2021. The 10-year U.S. Treasury has been moving higher and just crossed 1% for the first time since March 2020. I think it will keep moving higher in 2021.

The wall of liquidity building up in the capital markets—due to direct payments from the federal government and hyper-accommodative monetary policy at the Fed—has led to M2 money supply rising at an unprecedented 25% year-over-year rate. This pace is much faster than M2 money supply growth during the inflationary period of the 1970s. 

The implication is that rising M2 money supply could give way to inflation in the not-too-distant future, which could start placing upward pressure on interest rates. Upward pressure on interest rates could widen net interest margins at major banks, meaning better profits in the year ahead. I like owning areas of the economy with accelerating earnings. 

Below, Tickeron's A.I. runs an analysis of Major Banks, where investors can find trading ideas for some of the best names in the industry.