5 Bank Stocks to Love in This 'Goldilocks' Economy

An eventful quarterly earnings season is kicking off for bank stocks such as JPMorgan Chase (JPM) and Wells Fargo (WFC).

Over-the-shoulder shot of a transaction between a bank teller and a customer in a retail bank. The teller is wearing a black suit and receiving a check from the tan-suited customer over the b
(Image credit: Getty Images)

An eventful quarterly earnings season is kicking off for bank stocks such as JPMorgan Chase (JPM) and Wells Fargo (WFC). Thanks to corporate tax cuts, results across the sector are going to be messier than usual, analysts say. But wise investors will ignore the earnings noise and focus on the big picture for the year ahead.

Bottom line: 2018 is expected to be an especially good year for financial stocks, and not just because of lower effective tax rates.

First things first. Thanks to the timing of the passage of a new tax law, accounting rules are forcing some banks to take charges in their fourth-quarter results. Indeed, we’ve already seen some heavyweights come out with big revisions to their 2017 tallies because of changes to the tax code. Goldman Sachs (GS), for example, said in late December that it would take a one-time $5 billion tax hit in 2017, mainly for repatriating earnings held abroad. Citigroup (C) and Bank of America (BAC) also announced large accounting charges related to corporate tax reform.

This earnings season might make things look complicated, but the simple reality is that tax cuts are good for banks. More importantly, economic and financial conditions were quite favorable for banks even before changes were made to the tax code. Analysts at Keefe, Bruyette & Woods say, “This is a Goldilocks economic setting ideal for financial stocks – not too cold to worry about declining (interest) rates ... and not too hot to set the stage for much higher market volatility.”

Against this backdrop, a combination of solid fundamentals, lower effective tax rates and attractive valuations make these five large and midsize bank stocks look like winners, regardless of how this earnings season plays out.


Data is as of Jan. 11, 2017. Dividend yields are calculated by annualizing the most recent quarterly payout and dividing by the share price. Companies are listed alphabetically.

Dan Burrows
Senior Investing Writer, Kiplinger.com

Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.

A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.