A low interest rate environment and slowdown in economic activities put pressure on financial stocks last year. However, with the economy’s reopening and with it an uptick in financial transactions this year, many financial services companies are experiencing a solid recovery. This, coupled with improving odds that the Fed will raise interest rates soon in response to rising inflation, is helping the shares of Capital One (COF), Synchrony (SYF), and OneMain (OMF) climb to fresh highs. Despite hitting their 52-week highs recently, we think these stocks appear to have plenty of remaining upside. Read on. The financial sector suffered a major setback amid the COVID-19 pandemic last year thanks to the Federal Reserve's decision to keep benchmark interest rates near zero to help buoy the economy and lower financial transactions amid the recession. However, with the economy now reopening quickly, the sector is attracting a lot of investor attention given its recovery potential. This is evidenced by the Financial Select Sector SPDR ETF’s (XLF) 29.3% gains year-to-date compared to the SPDR S&P 500 Trust ETF’s (SPY) 13% returns.
During an interview with Bloomberg News this month, U.S. Treasury Secretary Janet Yellen signaled that a slightly higher interest rate environment would be a plus for the economy. Such a development is expected to be a boon for the financial sector. Furthermore, the industry is expected to grow in the coming months with the integration of more advanced technologies in financial transactions. According to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion in 2021.
Given this backdrop, we think it could be wise to bet on Capital One Financial Corporation (NYSE:COF), Synchrony Financial (NYSE:SYF), and OneMain Holdings, Inc. (NYSE:OMF). The shares of these companies have been hitting new price highs recently. And, based on their fundamental strength, we think their shares could ascend higher in the coming months.