FTSE 100 – Banking on the Banks

What’s behind this impressive week for FTSE 100 banks?

Over the last five days, FTSE 100 banks have been on the charge, with Barclays and Natwest having added 8% apiece, Lloyds trading around 4% higher, and HSBC having added 2.5%, ahead of their earnings release before the open tomorrow.

These gains have seen the stocks in question extend what has already been a very strong performance over the last two years, with Barclays now at its best levels since the GFC, Natwest trading comfortably north of the psychologically-important 500p mark, Lloyds touch new decade highs, and HSBC re-test the £10 mark once more.

What’s driving the bank stocks rally?

A strong reporting season has been the main driver of recent upside, which has allowed market participants to look-through any concerns that had been prompted by much larger-than-expected provisions in respect of the FCA’s motor finance compensation scheme.

Barclays, for instance, notched beats across the board in the third quarter, with investment banking revenues again impressing. Perhaps of more importance, however, was the bank shifting to a quarterly cadence of buyback announcements, suggesting a greater degree of confidence in the outlook, and in the ability to regularly return capital to shareholders, even if I continue to question, in the grand scheme of things, whether buying one’s own shares is really the best thing a firm can do.

Anyway, NatWest’s results were also solid, with profit having risen 30% YoY in Q3, lower credit provisions than expected, and with guidance for the calendar year being upgraded as well. Lloyd’s also raised NII guidance for the year ahead and, while profit disappointed, the bulk of this can be explained away by a previously announced £800mln charge in relation to motor finance redress, thus is not of especially much concern.

Are bank stocks signalling a stronger UK economy?

Banks are one of, if not the best, barometers for the economy at large, given the pivotal role that these institutions play in all parts of the economic cycle. As a rule of thumb, well-performing bank stocks are usually a good sign for the broader economy.

Using these names as a barometer of wider economic performance is particularly important in the UK, where there remain numerous concerns over the quality of official economic statistics. Perhaps, then, this solid run of earnings may go some way to dispelling the ‘doom and gloom’ which continues to dominate the UK macro narrative, even if that pessimism isn’t at all helped by the constant floating of pre-Budget trial balloons, and rumours of severe tax hikes come end-November.

Will the FTSE 100’s record highs lead to even more gains?

Bank stocks have led the charge for the UK benchmark in recent sessions which, aided by an impressive rally in LSEG shares as well, has pushed on to fresh record highs, with the FTSE 100 now trading north of 9,600 for the first time.

While that does mean that my year-end target has been achieved a couple of months early, it doesn’t mean that the rally has to come to an end. Anything but, actually, with equity all-time highs typically begetting further such records, as momentum traders pile in to ride the wave higher and, especially at this time of the year, FOMO- and FOMU-driven flows also increasingly make themselves known.

Naturally, participants will now start to question if, or indeed when, the FTSE 100 can print 10,000, with us being just 4% off that level. While such a figure could be surpassed this year, it would need the present ‘goldilocks’ environment to continue, and likely relies on the Budget not bringing with it any nasty surprises as well. Early-2026 could be a more realistic prospect for that ‘magic number’ to be hit, though as long as the FTSE remains above its 50-day moving average, at 9330, dips are set to remain buying opportunities.