Here’s what could be in store for the Lloyds share price in May

The Lloyds share price experienced volatility in April and this Fool expects more of the same in May. Here’s why he’d still buy the stock.

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The Lloyds (LSE: LLOY) share price has slowly been trending upwards in 2024. So far, it’s climbed a comfy 9.5%.

That makes a nice change for shareholders, myself included, given the FTSE 100 bank’s performance in recent years.

In the last five years, the stock’s lost 17.2% of its value. Investors would have forked out over 62.6p for a share back then. Today, it costs just 51.9p.

But things seem to be on the up for the Black Horse Bank. So what could be in store this month and beyond?

Interest rate uncertainty

As has been the case for the last few years, one of the biggest influences over Lloyds’ stock performance this month will be action surrounding interest rates.

While some previously predicted we could see rate cuts this month, that now seems highly unlikely.

Although Bank of England (BoE) governor Andrew Bailey previously said that expectations of cuts this year were not “unreasonable”, comments from Huw Pill, the BoE’s chief economist, have dampened investor hopes.

Speaking on inflation more recently, he said there’s still a “reasonable way to go” before he’s convinced it’s been tamed.

The BoE’s next meeting is scheduled for 9 May. While it’s seems unlikely that rate-setters decide to budge from the current 5.25% base rate, investors will be keeping a close eye on the bank’s comments for any more hints for what and when their next move could be.

Further volatility

With that in mind, I’m expecting further volatility in May and the months to come as economic uncertainty rumbles on.

Banks have benefitted massively from high rates in recent times as they’ve boosted margins. Last year, Lloyds’ underlying net interest income totalled £13.8bn, 5% higher than in 2022. However, falling rates will negatively impact this and we could see the stock wobble.

Too cheap to pass on

But in true Foolish fashion, potential short-term downward trends won’t concern me. And in fact, I think there are reasons why, at today’s price, the stock looks dirt cheap.

Investors can buy Lloyds shares trading on 6.9 times earnings, below the Footsie average of 11. That might be too good to be true for a business of Lloyds’ stature and quality.

That’s predicted to fall to just above six by 2026. And while rate cuts will dent margins, falling rates should also provide the wider market with a boost that will hopefully reflect on Lloyds’ share price as time goes on.

Passive income

On top of that, while I wait for its share price to continue rising, there’s a 5.3% dividend yield at play to provide me with passive income. Even so, I won’t pocket the cash. With its shares as cheap as they are, I plan to simply reinvest my dividends.

Looking at the bigger picture

All things considered, Lloyds may go through further volatility this month and as we head deeper into 2024, but I see plenty of value. Even if 2024 isn’t as kind to the stock as I’m hoping for, I’m holding on to my shares.

With any spare cash, I’ll be snapping up more.

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 assessed. Consider taking independent financial advice.

Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

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