Here’s why the Lloyds share price has rallied this year

Lloyds share price continued its strong rally this week and is hovering at its highest level since 2008 before the Global Financial Crisis (GFC). LLOY was trading at 83.65p on Thursday, bringing the year-to-date gains to 60%, making it one of the best-performing FTSE 100 companies. 

Why Lloyds Bank stock has surged

There are a few reasons why the Lloyds share price has jumped in the past few years. 

First, the strong rally aligns with the ongoing surge among European banking groups. Indeed, the closely watched iShares Europe Financials ETF (EUFN), which tracks the largest financial companies in the region, has jumped by 50% this year. Some of the other top gainers in the region are banks like Unicredit and Commerzbank. 

Second, the Lloyds share price has jumped because of the actions by the Bank of England (BoE), which has maintained high interest rates in the past few years. The benchmark rate is 4%, higher than the European one of 2%.

The BoE will likely maintain high interest rates for a while as the country’s inflation remains at an elevated level. The most recent data shows that the headline consumer price index (CPI) jumped to 3.6% in June this year. 

Indeed, the last interest rate cut was contentious as many BoE officials preferred leaving them unchanged. In an ideal situation without defaults, banks do well in a high-interest-rate environment because of the high net interest margin.

Third, LLOY is one of the Supreme Court on motor insurance. The ruling was in favor of banks, which helped reduce the potential compensation to customers to between £9 billion and £18 billion, less than the £30 billion that analysts had expected. Lloyds has put about £1.2 billion in provisions for this. 

LLOY strong results

The Lloyds share price has also done well after the company published strong financial results. These numbers demonstrated strong profitability growth in the year’s first half.

The company’s net interest income rose by 5% to £6.7 billion in the first half, helped by the high interest rates, which pushed the net interest margin to 3.04%. 

With interest rates coming down, investors are focusing on the other segment. This segment brought in £3 billion, up by 9% from the prior year. This growth is notable as the company hopes that it will be a key part of its business in the future. 

Lloyds stock has also benefited from cost optimizations. One way it has done this is to shut branches as customers have moved most of their transactions online. It is shutting over 150 branches this year. 

Finally, Lloyds shares have performed well due to their strong dividend yields. It has a dividend yield of 3.90%, higher than that of other companies.

Lloyds share price analysis

The weekly chart shows that the LLOY stock price has been in a strong bull run in the past few years. It moved from the 2020 low of 18.85p to the current 84p.

The stock has remained above all moving averages, a sign that bulls are in control. Also, the Average Directional Index (ADX) has moved to 26, a sign that the trend is strengthening. 

The Relative Strength Index (RSI) has moved above the overbought level. Therefore, the stock will likely continue rising this year as bulls target the resistance at 100p. However, there is a risk that the stock will have a reversal because of mean reversion.

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