ASK THE EXPERTS
Susan Breakefield Fulton
President of FBB Capital Partners in Bethesda
Susan Breakefield Fulton is president of FBB Capital Partners in Bethesda.
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When will financial stocks be a good investment again?
Investors still need to be very careful with most financial stocks. While the big subprime mortgage-related charges are likely behind us, problems with corporate lending and other consumer loan areas such as auto finance are starting to get worse, and there is a growing risk that dividends, long a support factor for the financials, could be cut.
The good news is that the yield curve is normalizing, meaning short-term interest rates are lower than long-term rates. Banks can make money in this environment, but they need to start lending again for this to happen. So far, they've been hesitant, preferring instead to hoard cash on their balance sheets.
There are a few select opportunities in the financial sector today, but overall we would be underweight in the sector. Investors should wait until the end of the year to reevaluate the financials for stabilization of cash flows and an improvement in operating margins.
