Lloyds shares have stormed to the upside and now trade close to the highest levels since the financial crisis.
With the Lloyds share price at 89p, investors will be eyeing the 100p as the next major target, especially if we see a break of 90p in the short term.
Whether Lloyds can hit this key psychological level hangs in the balance. There are valid bull and bear cases for the stock, both of which we will touch on here.
The main thing on the bull’s side is momentum. Lloyds is an oil tanker of a share. Once it’s set its course, it’s very difficult to change its trajectory.
Whether that was the range-bound, sideways trade around 50p over the three-year period after the pandemic, or the steady rally since the beginning of 2024, the Lloyds share price tends to settle into long-term trends.
And the market has set Lloyds shares on a course for further gains.
From a technical perspective, the trend points strongly to a test of 100p as the stock makes a series of higher highs, underscoring the market’s willingness to push the stock further along the rising trend line.
The uptrend is further underpinned by Lloyds’ share price reaction to the 50-day moving average, which has proved to be a buy signal each time it was touched this year.
Honing in on recent results, there’s a lot to like. Looking past the motor finance scandal, underlying net income rose 7% driven by strong demand and higher net interest margins.
Strong Q3 results were met with a string of broker upgrades, including RBC’s 110p price target.
What could knock Lloyds shares off course?
The UK economy is an obvious contender. Although Lloyds has so far shrugged off concerns about the underlying economic conditions, investors must have one eye on the UK jobs and property markets.
Zoopla’s recent house price report showed falling prices and rising housing stock. Should this continue, demand for Lloyds mortgage products will soften. That said, encouraging UK mortgage approvals data was released this week, showing that approvals reached their highest levels since December 2024 in September.
The UK jobs market is also an area to watch. It is already showing signs of softening, and if Rachel Reeves has her way, it could be about to get a whole lot worse.
The Bank of England’s natural response to both of these areas of softness will be to lower rates. And while this should be a positive for the economy and Lloyds’ customers, it will dent key net interest margins for the banks.
A new era for the banks
Despite obvious risks for the economy, the UK banking sector has seemed to have turned a corner.
The recent motor finance scandal shows that the market is prepared to focus on underlying earnings and the value held in banking balance sheets. This is demonstrated by long-running discounts to book values turning to premiums. Lloyds now trades at 1.2x its book value after spending years trading at a 50% discount.
The dramatic shift in market pricing puts the banks back where they should be in terms of valuation, and there is no sense yet that valuations are looking frothy.
Taking this all into consideration, Lloyds shares touching 100p before the end of the year is a real possibility. But investors must be mindful of the evolving economic landscape and potential changes in sentiment.