On the surface, banks did not fare very well in 2020. Most bank indexes are down year to date, while the S&P 500 is up more than 14%. But considering the gravity of the situation presented by the coronavirus pandemic, banks held up pretty well in an economic scenario that was unimaginable not too long ago.
With the possibility of returning to a somewhat normal life next year if vaccine efforts prove successful, the banking sector is positioned for a rebound. And that’s why your resolution should be to buy more bank stocks in 2021.
In general, most bank stocks are cyclical, meaning their performance is linked to the overall economy. When the pandemic hit earlier this year, it caused one of the most abrupt and severe recessions ever, shutting down broad swaths of the economy, causing massive dips in spending, and forcing people into their homes seemingly overnight. The scenario also quickly pushed the economy into a recession, forcing the Federal Reserve to rapidly drop its benchmark lending rate from 2% to practically zero.