Why the Barclays share price rose 6% in October

October was a strong month for the Barclays (LON: BARC) share price, after record Q3 profits. What lies behind the recent bullish sentiment?

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Over the long term, UK shares have probably gained around 6% per year on average. So a 6% climb in just one month in October is pretty good going for Barclays (LSE: BARC). We are in unusual times, for sure, but the Barclays share price has risen nearly 70% in the past 12 months.

Barclays’ Q3 results were released on 21 October. After the banking crisis, Barclays remained defiant in the backlash against international investment banking. And while Lloyds restructured itself as a UK-centric retail bank, Barclays retained its global commercial operations.

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That seems to be paying off, as the bank recorded a pre-tax profit in the quarter of £2.0bn, and £6.9bn over nine months. Never mind merely recovering from the pandemic downturn, this was Barclays’ best ever Q3 year-to-date profit. While Lloyds is dependent on UK lending and mortgages, investment banking brought in almost £1bn in fees for Barclays.

Ever since the bad old days of tumbling banks, investors (and regulators) have been almost paranoid over balance sheet strength. For that reason, banks were forced to suspend their dividends when the Covid-19 crash hit. That didn’t help the Barclays share price. But the fears do appear to have been exaggerated.

Strong balance sheet

Barclays recorded a CET1 ratio of 15.4%, ahead of its target range of 13%-14%. On the back of such financial strength, Barclays spoke of its capital returns outlook. It said its goal is “maintaining a progressive ordinary dividend policy and additional cash returns, including share buybacks, as appropriate“.

That suggests to me that Barclays shareholders could be in for some decent returns in the medium term.

But it’s not without risk. Health chiefs are expecting a tough winter from a combination of Covid and influenza, with the former on the rise again. And while, the UK economy looks set for a strong bounce-back year, the outlook still looks pretty shaky to me.

Still, recent economic strength does partly lie behind the strong month the banking sector enjoyed in October. But we do face rising inflation along with it. It should all bring an increase in interest rates, which should help the banks. But hopes for a rise before the end of the year were dampened by the Bank of England on Thursday, when policymakers voted for no change yet. Still, there’s another meeting to come in December.

Barclays share price dip

The Barclays share price has also taken a hit in the first few days of November, from the unexpected departure of popular CEO Jes Staley. Although the bank seems to have had succession plans in mind for some time, it still generates significant uncertainty at the top.

Would I buy Barclays shares now? I did hold Barclays for some time before the banking crash, and I was lucky enough to sell quickly and avoid a big loss. When I finally bought into the sector again, I went for Lloyds which I saw as having the safer strategy. It’s looking like my fears over Barclays’ risk were misplaced. So yes, on today’s valuation, Barclays is very much on my list of buy candidates.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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