Lee, Bianco See More Room for Bank Rally After 2012 Gains

Financial stocks have more room to advance even after a 26 percent rally last year, according to chief U.S. equity strategists from Deutsche Bank AG and JPMorgan Chase & Co.

Bank stocks offer “huge plays” on the housing recovery, Thomas Lee, New York-based chief U.S. equity strategist at JPMorgan, said in a television interview on “Bloomberg Surveillance” with Tom Keene. His counterpart at Deutsche Bank, David Bianco, said on the same program that he’s bullish on financial, industrial and technology companies.

“It’s a group that’s still viewed as tainted,” Lee said of the financial sector. “There’s investors that are still worried about regulations, you know, visibility.”

Financial companies outperformed the nine other main industry groups in the Standard & Poor’s 500 Index in 2012 as investor sentiment about the economy improved. The group trades at 1.1 times book value, a measure of assets minus liabilities, compared with 2.3 for the S&P 500. Housing is strengthening, with the S&P/Case-Shiller index of property values in 20 U.S. cities increased 5.5 percent in the year through November, the largest gain since August 2006.

Cyclical Lift

“A cyclical lift is coming,” JPMorgan’s Lee said, citing a U.S. recovery, Europe stabilizing and China accelerating.

Bianco said industrial and technology shares will be driven by the global economy and investment spending. Growth around the world is forecast to be 2 percent this quarter and 2.4 percent in the following three months, based on the median estimate from economists surveyed by Bloomberg.

The Morgan Stanley Cyclical Index, which measures the performance of economically sensitive industries, has added 7.4 percent this year. The S&P 500 has rallied 6.3 percent so far in 2013 as U.S. lawmakers reached a budget compromise and companies reported better-than-estimated earnings. The gauge is about 3 percent below its record high reached in October 2007.

Bianco predicts the S&P 500 will reach 1,600 by the end of the year, while Lee is estimating 1,580, at least a 4.2 percent gain from today. The average of 16 strategist forecasts compiled by Bloomberg is 1,543.

“I don’t think people have enough exposure to stocks,” Lee said. Bianco added, “In the short term, I don’t think we’re going to be making easy money, but whatever pullback we have does have to be bought.”

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