Are the banks a buy?

On Tuesday, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) overcame poor domestic jobs data and instead played catch up with overseas markets – a number of which have shown strength recently.

ANZ’s (ASX: ANZ) job advertisement series, released on Monday, highlighted a 1.8% fall in jobs advertised online or in newspapers. This would normally influence the share market in a negative way, however, reassuring commentary from overseas central banks as well as upbeat U.S. jobs data that emerged last week seem to have boosted the confidence of investors.

Whilst the benchmark index saw a gain of 1.5% yesterday, the market has been showing signs of making a recovery over the last couple of weeks, following its 11.8% drop between May and June. Strength has been seen in a number of industries in that time, and one would be forgiven for thinking that the banks may have finished with their short-term plunge.

Westpac (ASX: WBC), for instance, fell 22% from a high of $34.79 to just $27.15. It now seems to have settled, finishing yesterday at $28.95. Commonwealth Bank (ASX: CBA) also fell 13% to $64.49, but has now climbed back up to $70.14.

Foolish takeaway

With analysts expecting an interest rate cut next month and with the dollar falling, the banks could certainly see increases in their share price. However, investors should be aware that, even at their discounted price, the banks are unlikely to deliver market-beating returns in the long-run – particularly with analysts expecting slowed growth in revenue when interest rates begin to climb.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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