Lloyds (LSE: LLOY) shares regularly sit at the top of the list of most purchased stocks for Hargreaves Lansdown clients.
But more recently there’s been a seismic shift in the bank’s popularity with UK investors.
In fact Lloyds shares accounted for 2.2% of all sell orders on Hargreaves Lansdown’s investment platform in the past seven days. This made it the most sold stock in that time.
Dip buyers go missing
Tellingly there’s been a lack of interest from dip buyers in that time. Last week the ‘Black Horse Bank’ was only the 16th most popular stock on the platform. It accounted for 1.18% of all buy instructions.
That’s quite a fall from grace for the FTSE 100 bank. Here’s why I’m not tempted to buy Lloyds shares on the dip either.
Weak outlook
Banks are among the most economically sensitive companies out there. When times get tough they face an avalanche of bad loan charges and a dramatic fall in revenues.
Right now things are particularly tough for UK-focused banks like Lloyds. This is because the domestic economy faces a prolonged period of weak growth versus many other countries.
The risks to Lloyds’ earnings appear to be increasing too as economic headwinds intensify. This was illustrated in Goldman Sachs’ revised growth forecast over the weekend.
The US bank now expects Britain’s GDP to shrink 1% next year, down from the 0.4% contraction it previously predicted. It attributes this to deteriorating lending conditions and the corporation tax hike slated for April.
I’m not just worried about Lloyds’ outlook in the short-to-medium term. The UK is the only G7 economy to be smaller than it was before the pandemic. A combination of worsening productivity, Brexit, and a coronavirus-related hangover mean it could languish long into the future.
Rates support
The good news for Lloyds is that interest rates look set to keep rising strongly. A higher Bank of England benchmark boosts the margin between the rates banks offer savers and borrowers.
The City is now expecting interest rates to peak at around 5.1% next year. That’s more than double the current rate of 2.25%.
The likes of Lloyds probably won’t have to wait long for a big boost. Bank of England Governor Andrew Bailey said over the weekend that “inflationary pressures will require a stronger response than we perhaps thought in August”. The rate setters meet again in just over a fortnight.
Lloyds’ net income surged 12% in the first half of 2022 (to £8.5bn) thanks in large part to interest rate rises.
A risk too far
Lloyds shares command a low valuation right now. The stock trades on a forward price-to-earnings (P/E) ratio of just 6 times. It also carries a hefty 5.7% dividend yield.
But I believe the bank is a classic investment trap. Indeed, the heavy selling of its shares by Hargreaves Lansdown investors illustrates the increasing danger it poses to share pickers.
I for one plan to avoid the FTSE 100 firm at all costs.