2022 has been a disappointing time for the Lloyds (LSE: LLOY) share price. The stock is down over 15% year-to-date. And despite a rally in 2021, the last five years have seen shareholders suffer.
Lloyds shares have a 52-week high of 56p. However, today they currently find themselves sitting at 42p. So, will this downfall continue? Or could the bank rebound as we enter the second half of this year and beyond? Let’s explore.
Lloyds’ performance in 2022
After a strong 2021, the stock entered the year trading for around 50p. However, since then it has sunk to today’s price of just above 40p.
The main reason for this fall can be pinned to the macroeconomic pressures the business faces. Inflation reached 9.1% in the UK for May. And with interest rates increasing as a result, this could spell problems for Lloyds. This is because higher rates may see customers defaulting on payments. With the cost-of-living crisis ongoing, this could also reduce the likelihood of people taking out loans. These factors coupled together have seen the stock fall.
Where next?
So, where will the Lloyds share price go next?
Well, this depends on a few factors. Aside from inflation, the main threat to the firm is a potential recession. I think this has already attributed to waning investor confidence surrounding Lloyds. The stock suffered massively during the last financial crisis, and it has failed to recover since. Should we see a recession in the UK, this could provide a major setback for Lloyds.
The housing market has also enjoyed a prosperous period post-Covid. However, this growth looks set to slow as we enter the second half of 2022. Being the UK’s largest mortgage lender, this could have negative connotations for the bank.
Yet, despite this, I’d still be willing to buy Lloyds today. Starting with its valuation, the stock looks cheap. It currently trades on a price-to-earnings ratio of 5.6, comfortably within the benchmark 10. And what I also like about Lloyds is the higher-than-average (in comparison to the FTSE 100) dividend yield of 4.75%. For context, rival bank HSBC offers a dividend yield of just 3.5%.
Although it may face short-term headwinds, I also think Lloyds’ larger weighting towards property will bear fruit in the long run. Firstly, the UK continues to face a housing crisis that has yet to be solved. This means in the future demand could rise for mortgages.
I also like the moves the firm is making in the rental market, predominantly through Citra Living. As part of this, the business aims to buy 10,000 homes by the end of 2025, and around 50,000 by 2030. The return on these properties should boost Lloyds’ revenues in times ahead.
Lloyds may also be set to benefit from rising interest rates. Higher rates allow the business to charge lenders more when borrowing from the bank. This could also be a driving force behind a potential rise in the Lloyds share price.