US banks stocks have been under pressure in recent sessions due to tariff uncertainty, indicating the new macro environment is challenging for more than just the growth names.
Bank stocks are being hit in particular as Trump tariffs could lead to a recession in the back half of this year, said Erica Najarian, a large-cap bank analyst at UBS in a CNBC interview today.
“IYF” or the iShares US Financials exchange-trade fund (ETF) is currently down about 5% versus its year-to-date high in early February.
Why is a recession bad for bank stocks?
Individuals and businesses are less likely to take out loans during economic slowdowns.
Plus, borrowers struggle to repay their loans during such periods, resulting in an increase in defaults.
Revenue from investment banking, stock trading, and other financial services tend to decline as market activity slows amidst a recession as well.
Together, these factors lead to significant pressure on bank stocks during economic downturns. According to UBS analyst Erica Najarian:
What’s at immediate risk for modeling revisions would be capital markets activity we thought would be on the table this quarter. What’s next to be revised would be loan growth activity that was going to be popping off in the third quarter.
Tariffs could lead to interest rate cuts
Najarian sees Trump tariffs as a meaningful headwind for the US bank stocks as they could trigger the debate of potential rate cuts as well.
Economic numbers more recently have suggested the Federal Reserve may not be able to cut rates any further in 2025.
But if the new tariff environment starts to weigh on the economy and leads it towards a downturn, the central bank may have to step right back in and consider lowering rates to stimulate activity.
Bank stocks could take the brunt of such a move as lower interest rates tend to cut into their profit margins, as banks earn less from loans compared to what they pay on deposits amidst rate cuts.
Are US bank stocks worth owning in 2025?
All in all, the UBS analyst is cautious on the US bank stocks as a tariffs-driven recession could weigh on earnings and multiples this year.
“There’s nothing that changes sentiment more than credit quality when it comes to credit sensitive financials like banks,” she argued in a recent appearance on CNBC’s “Money Movers”.
Investors should note, however, that despite recent weakness, the iShares US Financials ETF is still up more than 25% versus its 52-week low in April of 2024.
Moreover, shares of the large-cap US banks pay a healthy dividend yield at writing that makes them somewhat more exciting to own amidst the tariffs-driven challenges in 2025, at least for those in search of an additional means of passive income.
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