Shares of Comerica (NYSE:CMA) fell 15.8% in March, according to data from S&P Global Market Intelligence, as a pair of analysts called a top for the shares early in the month and the Federal Reserve took an unexpected turn against bank stocks a few weeks later.
Comerica shares were hit with two downgrades early in the month. On March 6, Stephens analysts reduced their ratings on eight banks, including Comerica, concluding that after a strong run for the sector to start 2019 thanks in part to the excitement surrounding some high-profile merger announcements, the risk/reward potential for the shares was less attractive. The analysts rerated Comerica as "equal weight," down from "overweight."
A week later, Wedbush followed suit, downgrading Comerica to "neutral" from "outperform" on fears that earnings growth would be more challenging in 2020 for a range of factors.
The warnings of a slowdown proved to be astute later in March, when the Federal Reserve took an unexpected dovish turn, throwing future rate increases into doubt and pressuring bank stocks. The stock losses in the sector continued as 10-year Treasury bond yields fell below the yields on a three-month Treasury, meaning the yield curve was inverted for the first time since 2007. Investors often view an inverted yield curve as a sign of economic trouble on the horizon.
Comerica is a well-run bank, with a 1.72% return on assets well above the industry benchmark of 1%. It also offers an attractive 2.85% dividend yield at current prices.
That said, with the Fed on the sidelines and the economy potentially teetering, the next few quarters could be difficult for bank stocks in general and Comerica in particular. Comerica's interest-bearing deposit cost is well below that of its peer group average, which was an advantage during a period of rising rates but could work against it now.