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The Federal Reserve has been carefully raising benchmark interest rates in recent years, but that hasn't done as much for the financial sector as you might expect. However, banks, particularly the largest of them, which have been underperforming in the market, may soon be due for a bounce.
Or so says Motley Fool Chief Investment Officer Andy Cross in this segment of the Market Foolery podcast. Hear what he and host Chris Hill have to say on the subject.
A full transcript follows the video.
This video was recorded on Jan. 8, 2019.
Chris Hill: For those who listened to last week's Motley Fool Money show, we did our preview of 2019. You were scheduled to be on that show. Circumstances prevented that. I wanted to get you on today to give your take on how you're looking ahead to 2019. Let's start with what you're watching in terms of trends.
Andy Cross: Thanks for having me for that! That was nice! I'm sorry I missed that show. I'm glad to have a chance to talk a little bit. Obviously, investing is all about the future. When you put cash to work, you're hoping for a return on that. What's interesting with me this year is, with the Fed raising rates so aggressively over the past year, there's lots of talk about what's going to happen in the future. I'm actually one of those who think that we will see maybe one more increase. If we see two or more, I think that would be a little bit of a surprise. But what's interesting for me from that perspective is, I think financials actually have an opportunity to rebound from a pretty lackadaisical 2018, looking at 2019.
The Fed has been raising rates, which has been good in some ways for the financials and the larger banks that basically performed about the size of the market. I think companies like JPMorgan, Markel, some of the financials that are reliant on interest rates, a steady economy, a little bit of a Goldilocks kind of moment here. Financials could have a have a return in 2019.
Hill: We talk about the big banks every now and then. If you're someone like me, who does not own shares of any of the big banks, it's probably easy to sit back and think, "They're doing fine. I'm not worried about Goldman Sachs. They're doing fine." But you look at the performance over the past year for, as you mentioned, JPMorgan Chase, Goldman Sachs, 2018 was not a good year.
Cross: It wasn't. That actually surprised me. I thought they would have a better year last year. Wells Fargo continues to have some struggles there. They're such large enterprises that it's hard to turn on a dime.
I mentioned those two. On the smaller side, one that we follow in one of our small-cap services, Butterfield Bank out of Bermuda. It's a much smaller bank. It's only a about $1 billion in market cap. They're the dominant player in the Bermuda area when it comes to deposits. The stock had done very well, but then it got walloped after they came out with some weaker guidance after an acquisition they made of some trust business. That really has hurt some of the expectations. I see that as a buying opportunity for this bank that I think, over the next five years, will do pretty well in this kind of environment.