2023 was a great year for the markets. But behind the headline data, some sectors performed better than others. Most of 2023 followed the narrative of rising interest rates. That weighs on the cost of capital.
However, that trend has started to shift in recent months. Interest rates have peaked. And investors are looking toward interest rate cuts in 2024. That could prove a boon for companies that benefit from lower rates, which may be outperformers this year as a result.
One area that could fare better is the big banks.
While most had a positive return last year, they underperformed the overall market. Lower interest rates could lead to a boom in lending and fees, which would boost the sector.
Among the big banks,
Citigroup (C) could fare the best.
Shares trade at just half their book value. And the stock trades at 8 times earnings. But Citigroup is making a major overhaul, and could see improved returns this year.
Action to take: Investors may like shares here, as they’re trending higher, but still clearly undervalued. Improved profitability could lead to rising share prices in the year ahead. Plus, at current prices, Citigroup pays a hefty 4 percent dividend.
For traders, shares are likely to trend higher in the year ahead. The June $57.50 calls, last going for about $1.90, could see mid-to-high double-digit returns in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any companies mentioned in this article.
