Last week, the market took an unexpected turn, leading to a remarkable surge in shares of KeyCorp. This upswing prompted us to revisit our recommendation to buy the stock.
Up until Tuesday, KeyCorp had been struggling, experiencing a 20% decline in its value this year alone, making it one of the worst-performing banks in the S&P 500 index. The bank had suffered greatly from the earlier sell-off that had rattled regional bank stocks, witnessing its shares drop by nearly 50% at one point. However, recent months have witnessed a change in sentiment from Wall Street towards KeyCorp. Even renowned bond guru Bill Gross joined in as a buyer in October. Gross was enticed by a dividend yield of over 7% and the fact that shares were trading just below book value. As of last week, Gross still remained a staunch supporter of KeyCorp.
Then came Wednesday – a game-changing day. The Federal Reserve published its Summary of Economic Projections, also known as the dot plot, which indicated the possibility of three rate cuts in 2024. This news alone ignited a surge in the market, propelling it to new heights. The Dow Jones Industrial Average reached an all-time high, and bank stocks, in particular, exhibited remarkable strength. The SPDR S&P Regional Banking exchange-traded fund recorded a substantial gain of 9.9% throughout the week until Thursday.
The Surge of Previously Unloved Stocks
Previously unloved stocks made a surprising comeback this week. Key, in particular, experienced a remarkable rise of 11.4% through Thursday’s market close, reaching $14.77 per share. Analysts surveyed by FactSet had an average price target of $13.52 for the stock, making Key’s surge even more impressive. One can attribute this sudden boost to the Federal Reserve’s influence, as investors gained confidence in Key’s bull case and decided to invest beyond expectations.
Peter Winter, an analyst at D.A. Davidson, showed confidence in Key, naming it as one of his top picks for 2024. Although the bank faced challenges with weakening margins, Winter believed Key could manage to keep its expenses stable. Furthermore, he expressed optimism about the potential growth in investment banking activity, which had been relatively low in 2022 and 2023. Winter’s price target for shares stood at $14, resulting in a bullish outlook for Tuesday, but it provided no room for further upside by the end of the week.
Interestingly, other underperforming banks also experienced significant improvements. Comerica, Citizens Financial, and Zions Bancorporation, which had been among the most punished banks this year, recorded substantial gains. On the other hand, JPMorgan Chase, this year’s top performer, witnessed minimal movement.
While there may still be potential for banks to continue their upward trajectory in this budding rally, it would be wise to await further developments before jumping in.