Early last month, the Lloyds Bank (LSE: LLOY) share was on a roll. The share price had touched 50p, finally moving past the mighty blow it took from the pandemic.
Lloyds share price softens
But a little over a month later, it is falling again. In early trading today, it is down 8% from last month’s highs. And this is not just a one-off dip. It has been slipping pretty consistently over the past few weeks.
It could slip even more in the next few days on the recent news that its insurance arm misled clients and was fined. This could do some damage to its image in the short term. However, I think Lloyds Bank has built a sufficiently solid reputation as a quality bank over time, and this will protect it from any long-term damage.
In any case, this does not explain the past month’s share price trend. The Lloyds share price had been falling before the news broke.
Why I am optimistic
This is an unexpected trend at a time when the broader stock markets have remained buoyant and the outlook for the economy has improved. No new developments have been reported by the bank in recent weeks either.
These alone are good reasons to still be bullish on the Lloyds Bank stock. And there are more. First, consider the share price trend. Sure, it has fallen in the past month. But over the year, it is up more than 50%. In other words, there has been undeniable upward movement in the share price since the most difficult days of the pandemic.
This is supported by a good set of latest results. The bank also upgraded its forecasts. Another financial update is due later this month, which should also give impetus to the Lloyds share price.
Moreover, it maybe able to increase dividends sooner rather than later. Before the pandemic, it was an attractive dividend stock, but banks’ payouts were brought under strict regulation last year as risk avoidance at an uncertain economic time.
There are some risks too
That said, there are a few reasons to be cautious as well. First, supportive policies for the housing market are in the process of being withdrawn now. Lloyds Bank is a big mortgage lender, so it benefited from the housing market boom. It follows that the bank can get impacted as property purchases cool off.
Also, so far economic growth has not taken off. While it is true that we are still under some restrictions, many of them have been lifted. To my mind, this raises some doubts whether the recovery will be as strong as is forecast at present.
My assessment
On the whole, though, I reckon there is more reason for optimism than not. Whether or not economic growth meets expectations, we know for a fact that it will be better than it was during last year’s lockdowns. This can also keep the real estate market healthy, even with less policy support. This bodes well for Lloyds Bank. I think it can still continue to make gains. It is a buy for me.
