The Lloyds share price has dived 17% in 16 days! What would I do today?

Since its recent peak on 25 November, the Lloyds share price has slumped by a sixth. Would I buy, hold or sell this FTSE 100 stock right now?

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What a roller-coaster year it’s been for shareholders of Lloyds Banking Group (LSE: LLOY). Being the UK’s biggest retail bank in the worst global pandemic for 100 years and the UK’s worst economic decline for 300 years has been tough. Indeed, the Lloyds share price has been one of the FTSE 100‘s worst performers in 2020.

Covid-19 crashes the Lloyds share price

This has been the worst year to own Lloyds shares since the global financial crisis of 2007-09. At their 52-week high, Lloyds shares peaked at 73.66p on 13 December 2019 (almost exactly a year ago). As Covid-19 went global, it was all downhill from there and the Lloyds share price went into meltdown.

Looking at a chart for 2020, the Lloyds share price in 2020’s first quarter resembles a ski jump. From late February to early April, the stock chart looks like a cliff, as Lloyds shares plunged in the ‘pandemic panic’. The share price then staged a comeback for two months, before resuming its decline. By 22 September, it had crashed to 23.58p — a collapse of more than two-thirds (68%). Two days later, I said that I saw “a lifetime of value in Lloyds shares” at 24.58p and that I would “happily buy and hold Lloyds shares for life”. The share price has since soared.

Lloyds stock surges by 73%, but then slips back

Since bottoming out on 22 September, the Lloyds share price has rallied powerfully. By 25 November, the stock had hit a post-meltdown peak of 40.82p, soaring by almost three-quarters (73.1%) in two months. This rally has since reversed, with the stock sliding back. On Friday, it closed at 34.07p, down 6.75p — almost a sixth (16.5%) — in 16 days.

What’s causing this weakness?

The share price is being battered by a ‘triple whammy’. First, a strong second wave of coronavirus infections around the world is unnerving investors. Second, the Bank of England is looking to bring negative interest rates to the UK, harming banks’ lending margins. Third, the growing likelihood of a no-deal Brexit makes global investors wary of being overly exposed to UK stocks.

Would I buy Lloyds shares today?

I’m not a Lloyds shareholder, but I would be tempted to buy at the current share price. I expect good news to propel the Lloyds share price higher in 2021. In late March, the bank was forced by the Prudential Regulation Authority (PRA) to cancel its dividends. However, the PRA has now confirmed that, subject to certain financial tests, UK banks can resume cash payouts next year. Therefore, Lloyds could announce its new dividend policy as early as next February — just two months away.

Likewise, after huge write-offs in the first half of 2020, Lloyds’ profits should bounce back in late 2020. A decent set of results would underpin the share price, as would a return to profitability in 2021. Today, Lloyds in its entirety is worth £24.1bn. If I could buy the entire bank at that price, I would. Indeed, I’d expect to make my money back and more within a decade, with ease. That’s why I’d happily buy Lloyds stock today, ideally inside an ISA, so as to enjoy tax-free dividends and future capital gains!

RISK WARNING: 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. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

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