LEND - KBW sees financial sector path for recovery without reflation in 2021

The U.S. economy is set for a vaccine-fueled recovery in H2 2021, and if more fiscal support from Congress is available to bridge H1 pandemic weakness, financial stocks are well-poised for outperformance, write KBW analysts Frederick Cannon and Brian Kleinhanzl in a note to clients.However, if fiscal stimulus doesn't develop or is too modest, a recession could occur in H1, limiting momentum for an H2 recovery. "If that occurs, financial stocks would be at risk for higher credit costs, limited capital return, and even lower bond yields," they wrote.They see continued low rates with no rate hikes through at least 2022 and bond yields staying below 1.5%.The integration of technology with the financial sector will continue as a key theme in 2021. More fintech firms will come to market through IPOs, insurance companies and banks will purchase fintech, consumers will continue the shift to virtual financial service delivery, they said.ARK

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KBW sees financial sector path for recovery without reflation in 2021