Bank stocks have been crushed this year. 2 of our names should weather the storm
A trio of uncertainties, from the Iran war to AI disruption to private loans, are crushing financial stocks this year. While shares of Goldman Sachs and Wells Fargo are drifting downward, their businesses should be largely insulated from these headwinds. Still, Goldman Sachs and Wells Fargo Club stocks are on par with the financial sector. In a big turnaround from last year’s strength, Goldman is down 11% in 2026, while Wells is down more than 20% to date. We don’t think these stock declines reflect business fundamentals. It’s a tough but temporary pill to swallow and why we believe these Wall Street giants should emerge just fine on the other side of the current challenges. War with Iran The Iran war has led to volatility in bank stocks due to concerns that rising oil prices could hurt both consumer and business customers and lead to reduced profits. Rising oil means higher gas and diesel prices paid at the pump and higher fuel prices needed to fly planes; All of these can create an inflation shock. In this environment, it may be difficult for the Fed to cut interest rates — even under the likely next Fed chief, Kevin Warsh. This could be bad news for consumers who expect borrowing costs to fall; Not to mention being stuck paying more to drive and fly. When consumers feel under pressure, they tend to rein in their spending, which can lead to them taking out less credit or being unable to repay the loans they do have. On the business side, these higher fuel costs can pressure margins, as energy is also a large and unavoidable cost for companies. Additionally, when business confidence takes a hit, executives may be more hesitant to make acquisitions and initial public offerings. This means they don’t need investment banking services as much. They may also consider taking on less debt. “All of this actually translates into a growth outlook [for banks] It may be slower. If we enter some version of a stagflation environment, we could see more defaults,” Bank of America research analyst Ebrahim Poonawala told CNBC in a recent interview. Stagflation is when economic growth slows, there is high inflation and high unemployment. Poonawala, who follows Goldman Sachs, added: “This raises the possibility of downside risk relative to what would have been assumed a week or a month ago.” As a more traditional money center bank, Wells Fargo is more. While Goldman Sachs has been exposed to fewer mergers and acquisitions, its global banking and markets division, including deal fees, accounted for about 77% of total revenue last quarter. Revenue from investment banking, its largest segment, rose 25% year over year in the fourth quarter. Weakness in deals is less worrisome for Wells Fargo’s growing investment banking business. Wells Fargo, whose firm’s corporate and investment banking division accounted for 21% of total revenue last quarter, has taken steps to expand its investment banking presence to further diversify its bottom line and avoid relying so heavily on interest-based income that remains at the mercy of the Fed’s interest rates. But as Investing Club portfolio analyst Zev Fima says, “We still like banks because we’re thinking about Iran.” Conflicts can be resolved quickly enough to avoid a recession.” In an ironic tailwind for now, stock market fluctuations are actually a boon for Goldman’s trading desk, attracting fees by offering complex options and swaps to clients to hedge Goldman’s risks. “This volatility is Goldman’s world,” Jim Cramer said on Tuesday. He added: “I really want to buy here. Right here.” On Thursday, we put together a list of stocks to buy, and Goldman Sachs was on that list. Jeff Marks, the club’s director of portfolio analysis, noted that Goldman Sachs is trading at its cheapest price-to-earnings ratio in years, less than 14 times estimated earnings per share for the next 12 months. On Friday, Jim said on CNBC: “I think Wells will come back. They’re having a good quarter.” Wells Fargo’s forward price-to-earnings ratio is also at a historically low multiple of less than 11 times. Risk of AI disruption Rising AI adoption has created another cause for concern among bank investors. Financial stocks fell last month on Citrini Research’s viral report outlining a doomsday scenario for AI adoption. Unemployment rates could rise to 10% by 2030 if white-collar jobs are replaced by machines, the paper said, adding that economic We even bought more Wells Fargo shares during this AI-induced selloff, bringing the shares back to our buy-equivalent 1 point, according to Jim, who described the Citrini report as a “dystopian story” and “a reach.” In February, CNBC reported that Goldman was working to build AI agents to automate a number of internal roles. Prior to that, Wells Fargo expanded its AI leadership team, with Faraz Shafiq having previously worked at Amazon Web Services, Verizon, AT&T and Google. “I know things are bad at banks, not all of them are bad,” said Blue Owl, a retail-focused company last month. It restricted withdrawals from its funds, following the Blue Owl news, with asset managers reporting increases in repayment demands, and a lesser-known firm Cliffwater also reporting increases in repayment demands. The fast-growing private credit market also entered the mix as private loan funds borrowed money from them to increase the size of the loans they offer, with private markets also diversifying into the mix in testing last summer. In fact, Columbia Business School professor Tomasz Piskorski said that banks are “reasonably well protected” against fears of private credit expansion. A 10 percent decline in the value of a bank’s assets could potentially put the company at risk of bankruptcy. But the same logic does not apply to private credit funds because they are not structured in the same way. Instead, Piskorski argued, those instruments require much more equity, or capital, on average. “This means asset value must fall by more than half before banks will lend to the private sector. Loan funds will suffer, Piskorski told CNBC in an interview. “In other words, private credit funds have very large capital buffers. So it’s not actually the banks that are shorted – it’s the limited partners who are providing loans to private credit funds – it’s the limited partners who are providing equity to those private credit funds,” Piskorski added. But private credit was a concern for us when it came to BlackRock — a stock we exited earlier in the month because those concerns became too much of a distraction. Even though it wasn’t a big part of its business, we owned the shares on the thesis that private markets would become more common among retail investors. But the latest weakness in the sector is as Jim acknowledged problems with private credit, saying on Friday: “We’ll look back and say this wasn’t 2007.” That year, lending and leverage problems were mounting ahead of what would become the 2008 financial crisis and the Great Recession (Jim Cramer’s Charitable Trust is long GS, WFC. See here for a full list of its stocks). At the Trading Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a transaction alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE POLICY CONDITIONS THAT NO UNDERTAKING LIABILITY OR DUTY WILL EXIST OR CREATE IN CONNECTION WITH THE RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
