If there is one stock that has started 2022 on a good note, it has to be the FTSE 100 banking biggie Lloyds Bank (LSE: LLOY). As I write, the bank has gained almost 13% since the end of 2021, and has also stayed above 50p during the past few sessions as well.
FTSE 100 index powers ahead
This is no surprise really. The FTSE 100 index as such has also done well recently. Earlier this week, the index pushed past 7,500 and has stayed above these levels as well. Clearly, investors are feeling bullish. And when they are, cyclical stocks are expected to outperform the markets. This probably explains why the Lloyds Bank share price has been on the up and up recently.
UK’s economy is back at pre-pandemic levels
In fact, I believe that it could rise even higher. And not just because I have an optimistic assessment of the stock markets as such. It so happens that the latest numbers for the UK economy give reason for cheer. Gross domestic product (GDP), which is the headline measure for the economy, is finally above its pre-pandemic levels of February 2020. In other words, the setback from the pandemic is now behind us and, hopefully, we can look forward to a time of growth.
Banks are among the stocks most impacted by the UK’s economic conditions. And I think that is truer for Lloyds Bank far more than for other FTSE 100 banks. It is possibly the most focused on the UK economy, unlike HSBC and Barclays that have other geographical interests as well. So if the UK does well, essentially fortune is smiling on the bank too.
This is also a relief considering that until very recently, the UK economy’s recovery was just not picking up pace. In fact, the bank’s own ‘Lloyds Bank Recovery Tracker’ revealed in December 2021 that the pace of recovery slowed in November.
Rising interest rates
Further, the higher interest rate environment could give it a fillip too. Banks’ stocks responded well to the Bank of England’s swift move to increase interest rates after inflation came in high last month.
However, increased interest rates would only be good for banks up to a point. If they rise too much in response to inflation, they could choke demand in the economy. Mortgage demand in the UK is already slowing down, as per a recent Bank of England survey. This was expected, as fiscal support to the property sector was withdrawn. And an increase in interest rates could impact it even more. Lloyds Bank is UK’s largest mortgage lender, so I think we should brace for some impact on the sector already.
My assessment for the Lloyds Bank share price
Still, I think the stock is severely undervalued. And unlike many other FTSE 100 stocks, is still trading significantly below its pre-pandemic levels. I think it is only a matter of time before it picks up pace, though. I actually expect this year to be a really good one for the Lloyds Bank share price, and that is why I will buy it soon.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, 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.