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There is a really strong shift in sentiment towards UK banks at the moment, according to data from artificial intelligence specialist Irithmics for the week ending 26 February. Irithmics is a specialist in monitoring and analysing activity on the part of big investors like pension funds and fund managers in listed stocks and applying machine learning evaluations to these trends.

Strong positive sentiment on both Lloyds Bank and Barclays stock

While investor sentiment is a constantly changing picture, the dials are firmly turned to green on both Lloyds Bank [LSE:LLOY] and Barclays [LSE:BARC] this morning. Investors are strongly bullish on both banks across both the short term and long term horizons..

If there is a difference, it is that the appetite for Barclays is much weaker than for Lloyds. While sentiment around Barclays looks good, institutional investors are more likely to act in the market around Lloyds Bank stock.

A date for your diary

On the 21st of October, Stuart Fieldhouse will be joining Sarah Lowther and Mark Watson-Mitchell to discuss which small cap investments they like the look of and, perhaps, which ones they do not. It promises to be a lively and insightful discussion. If you are interested in investing in small cap stocks then this could be a profitable use of your time. We hope you can make it! Sign up now

This sentiment is translating into share price action: Barclays shares have pushed up from a plateau at around £1 to hit £1.60 at time of writing. Much of this action has occurred over the period since the start of October. The stock is just a smidgin off its 52 week high.

Lloyds Bank stock is looking more subdued by comparison: shares were trading around 25p in October and have since climbed sporadically over the winter months. Pre-COVID they were trading at over 60p.

Both banking stocks still have significant upside potential

In the case of both banks, much of the recovery momentum has been priced in, but both still have some significant ground to still make up. However they are likely to be driven further by returning positive sentiment around the state of the UK economy over the summer months.

Barclays beat expectations last month and announced a £700m share buyback programme and said it will restart dividends. Provisions for bad loans offset a strong performance in the investment banking division. Profits slipped 68%, but this was not as bad as feared. Meanwhile provisions for credit losses were also lower than the previous quarter. Corporate and Investment Bank (CIB) income rose 22% to £12.5bn due to strong trading revenues. Consumer, Cards and Payments (CC&P) income dropped 22% to £3.4bn.

Lloyds shares broke above 40p last week as the company reported better-than-expected full year profits and resumed dividend payments. The company’s bullish outlook for 2021 is encouraging. Impairment charges of £4.2bn were a lot lower than the £4.7bn expected.

“Going forward I expect loan loss impairments for all the major banks will be much lower than many people believed nine months ago thanks to ongoing government support schemes for workers and businesses during the pandemic, combined with a swift recovery and bounce back in economic sentiment and spending in the summer,” said Neil Wilson, Chief Markets Analyst at Markets.com.

Not everyone is convinced about the path of Lloyds Bank shares – Berenberg analysts said that while capital return prospects at Lloyds have improved, headwinds could still limit further upside. Berenberg has Lloyds on a hold rating at the moment with a 39p target. The data we are seeing however, point to more institutional investors stocking up on Lloyds this quarter. This sort of demand which looks both short term and long term, should have a positive impact on the share price.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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A date for your diary

On the 21st of October, Stuart Fieldhouse will be joining Sarah Lowther and Mark Watson-Mitchell to discuss which small cap investments they like the look of and, perhaps, which ones they do not. It promises to be a lively and insightful discussion. If you are interested in investing in small cap stocks then this could be a profitable use of your time. We hope you can make it! Sign up now

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