Lloyds share price languishes as focus shifts to July 26th

UK bank stocks have underperformed the broader market this year. Lloyds (LON:LLOY) share price has dropped by ~4% this year while the FTSE 100 index has retreated by ~0.63%. This trend is in sync with other leading British banks like Natwest (NWG) and Barclays (BARC).

July 26th is the date to watch

Lloyds stock price has continued its long track record of underperformance this year. After peaking at 52.30p in February, the stock tumbled to 41.97p in June. As I wrote in this article, most investors in the bank have either lost money or underperformed the market over the years.

The next important catalyst for the bank will come on July 26th when the company will publish its first-half results. These results will come at a time when the British economy is going through major headwinds. 

Inflation has remained stubbornly high, which has pushed the Bank of England (BoE) to continue hiking interest rates. In June, the bank delivered a 0.50% rate increase, bigger than the median estimate of 0.25%.

At the same time, bond yields have jumped as their prices have dropped. The most recent data shows that gilts delivered the worst returns in the developed market in the first half of the year. Bond yields and prices tend to move in the opposite direction.  

On Tuesday, the average fixed UK mortgage jumped to 6% for the first time since the mini-budget crisis last year. As a result, a financial watchdog has summoned banks, including Lloyds to explain why they are profiteering as interest rates rise.

Therefore, the bank’s half-year results will provide more information about the bank’s performance. In the first quarter of the month, Lloyds net interest income jumped by 20% to over £3.9 billion while other income rose modestly to £1.2 billion. Its statutory profit after tax rose to £1.64 billion.

Is the Lloyds share price too cheap?

LLOY chart by TradingView

A case can be made that the Lloyds stock price is too cheap. Besides, the company is in a strong financial position, thanks to its high CET ratio of 14.1%. The bank is also slowly growing its dividend while the housing sector has avoided a major crash. Lloyds is one of the biggest players in UK’s housing sector as a leading mortgage provider and landlord.

My main concern is that Lloyds stock has not done well since the 2008/9 financial crisis. While other banks have recovered, as shown above, the stock remains about 76% below its pre-crisis high. In the past decade, the stock has remained between the support and resistance levels at 22.5p and 63.51p.

Past performance is not a good indicator of future trends. However, in Lloyds case, I see no positive catalyst that will push the shares to 100p in the near term. This view will only change if the stock rises above the resistance point at 63.51p, its 2015 high.

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