Many economists and investors expect the Federal Reserve to begin raising interest rates in March, helping bank earnings.
Bank stocks are starting off the year with a bang in reaction to the Federal Reserve’s adoption of a more hawkish stance on monetary policy.
The KBW Nasdaq Bank Index, which covers 24 of the biggest U.S. banks, has soared 10% so far in 2022, matching its 2010 record for the first five days of a year, according to Bloomberg.
Minutes released Wednesday from the Fed’s policy meeting last month said rampant inflation and a red-hot job market could necessitate rate hikes “sooner or at a faster pace than participants had earlier anticipated.”
That led many economists and investors to forecast a rate increase in March, after the Fed’s planned completion of its bond-buying tapering. The CME FedWatch tool indicates federal funds traders see a 76% chance the Fed will move in March.
Higher interest rates help banks because they can often raise the rates they charge on loans more quickly and by a higher amount than the rates they pay on deposits.
Ascending rates and faster loan growth represent “the two biggest catalysts for investors to become more bullish on bank stocks,” Raymond James analysts wrote in a note.
JPMorgan analysts expressed bullishness on the sector last month, though they said some of the big names will struggle to match their gains from last year. The KBW Bank Index soared 35% in 2021.
Bank of America (BAC) – Get Bank of America Corp Report, should particularly benefit from higher interest rates, the analysts said.
And PNC Financial Services (PNC) – Get PNC Financial Services Group, Inc. Report should enjoy merger cost savings while it invests in “large excess liquidity,” they said.
