Lloyds share price has lost momentum in the past few months and formed a bearish pattern that may push it downwards soon. It dropped from last year’s high of 63.40p to 53.70p, as the focus now shifts to the upcoming bank earnings season in the United States.
Bank earnings season
Lloyds Bank and other British banking companies performed well in 2024. Between its lowest and highest points during the year, the company jumped by about 70%. NatWest was one of the best-performing companies in the FTSE 100 index, while companies like Barclays, HSBC, and Standard Chartered soared by double digits.
Lloyds Bank stock has done well because of the resilient performance of the British economy and the elevated interest rates by the Bank of England (BoE). Like other central banks, it hiked interest rates to a multi-year high in a bid to fight the elevated inflation.
Banks benefit from high interest rates because they boost their net income margin (NIM). However, at times, as we saw with British banks, high rates have a limit since they often lead to capital flight from banks to money market funds that provide better returns. Also, higher rates usually lead to delinquencies among borrowers.
The next important catalyst for the Lloyds share price will be the upcoming bank earnings season from the United States. The country’s biggest banks like JPMorgan, Bank of America, Goldman Sachs, and Wells Fargo will publish their financial results this week.
These results will set the tone for global banks like Lloyds and companies like Barclays and NatWest.
However, these banks are significantly different from Lloyds. For one, Lloyds is a British bank focusing mostly on consumer and business lending. JPMorgan and Bank of America offer diverse services, including wealth management and investment banking.
Lloyds’ business is doing well
The most recent financial results showed that its business is doing relatively well even as its key metrics dropped.
Its net interest income dropped by 8% to £9.56 billion, down from £10.44 billion. Its other income rose by 9% to £4.16 billion. Altogether, its net income fell by 7% to £12.73 billion in the third quarter. Consequently, the company’s profit after tax fell by 12% to £3.77 billion.
The management hopes that its business will continue doing well soon even as the Bank of England starts cutting rates.
Economists anticipate that the central bank will continue cutting rates this year after it cut two times last year. With the economic growth slowing, the bank may deliver at least three big cuts this year, a move that may impact its net interest income.
Lloyds Bank is also paying substantial dividends, giving it a yield of 5.6%, higher than that of the FTSE 100 index.
It hopes to continue with its dividend strategy, by unlocking some of the cash in its balance sheet. Lloyds has a CET1 ratio of 14.3%, and it hopes that the figure will get to 13% by next year, pointing to more returns.
Lloyds share price analysis
The daily chart shows that the LLOY share price has been in a tight range in the past few weeks. It has moved below the 50-day moving average. Most importantly, there are signs that the stock has formed a bearish flag chart pattern, a popular bearish sign in the market. This pattern is one of the riskiest signs in the market.
Lloyds has moved to the 38.2% Fibonacci Retracement level, while the Relative Strength Index (RSI) and the MACD indicators have pointed downwards. Therefore, the bearish flag pattern will point to more downside, with the next point to watch being the 50% retracement point at 50.4p.
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