5 Apr

How Rate Hike Will Affect Banking Stocks



Banks Win Yuuge

Certain sectors are closely correlated with the outlook for interest rates. Banking stocks tend to make money on the “net interest margin” between their liabilities (checking and savings accounts, CDs, etc) and their assets (mortgages issued, car loans, etc). It follows that margins rise with the general level of interest rates, so outperformance of the banking sector is usually a good bet. Banks have been outperforming since July. Some analyst think they’re on the verge of a big bullish breakout, as some traders are expecting an even more aggressive tightening timeline from the US central bank, than was previously anticipated.

How Rate Hike Will Affect Banking Stocks

Whether it’s U.S. Treasurys, miners, or bank stocks depending on the day, stocks may move “bigly”, in either direction. Daily leveraged and inverse ETFs magnify risk, volatility along with returns, so if you’re trading leveraged and inverse ETFs, make sure you monitor your positions.

Market Realist

Post-Trump victory, banking stocks outperformed the broader indexes

As the Federal Reserve begins to tighten the credit cycle, the potential impact on various equity sectors varies. The financial sector (FAS) is expected to get a leg up from the recent rate hike decision due to the widening of the net interest margin. Additionally, strong consumer and corporate balance sheets should support higher loan demand, benefiting the sector. The improving economy and rising wages also mean fewer bad loans, which helps strengthen the banks’ balance sheets. Additionally, the prospect of a lighter regulatory environment should help the financial sector (FAZ).

How Rate Hike Will Affect Banking Stocks

Against this background, the financial sector is thriving in the post-election scenario due to the prospect of higher economic growth, less regulation, and a steeper yield curve. The Fed’s latest rate hikes drew investors back to the financial sector, resulting in huge gains in the financials index. The MSCI USA IMI Financials Index is up 23.4% post-election to date compared to a 12.6% gain in the MSCI US Broad Market Index.

Leveraged ETFs

The Direxion Daily Regional Banks Bull 3x ETF (DPST) doubled after Trump’s victory. On the other hand, the Direxion Daily Regional Banks Bear 3x ETF (WDRW) plunged 60.6% during the same period. According to the fund, “The Direxion Daily Regional Banks Bull and Bear 3x Shares seeks daily investment results, before fees and expenses, of 300% or 300% of the inverse (or opposite) of the performance of the S&P Regional Banks Select Industry Index.” Though investors can multiply their returns through leveraged and inverse ETFs (NUGT), they should be used with utmost caution due to the complexity of the product.


How Rate Hike Will Affect Banking Stocks

Latest articles

Today, Canopy Growth announced that it acquired the Saskatchewan-based KeyLeaf Life Sciences along with entities relating to the company and its intellectual property. Here's what you need to know about the completed deal.

Yesterday, Tyson Foods (TSN) and fellow meat producers Pilgrim’s Pride (PPC) and Sanderson Farms (SAFM) took a hit to their stocks after news came out about an investigation over price-fixing allegations.

On June 24, RH (RH) was trading at $115.01, implying a rise of 21.2% since its announcement of its first-quarter earnings results on June 12. Despite the surge in its stock price, the company is still trading at a discount of 29.1% to its 52-week high.

26 Jun

Roku Stock Fell Close to 7.0% Yesterday

WRITTEN BY Aditya Raghunath

Roku stock fell 6.8% yesterday to close trading at $93.25 per share. Roku stock has lost over 9.0% in market value in the last two trading days. Prior to this pullback, Roku stock was up a whopping 235.0% year-to-date.

26 Jun

Beyond Meat Stock Up Today on New Product Launch

WRITTEN BY Rajiv Nanjapla

Today, Beyond Meat (BYND) announced that its new product, Beyond Beef, will hit markets across the US later this week.

FedEx (FDX) ended fiscal 2019 on a dismal note and reported a significant YoY decline in fourth-quarter earnings. The delivery giant posted adjusted EPS of $5.01, which was 15.2% lower than the year-ago quarter’s earnings of $5.91. The company cited sluggish revenue growth and increased expenses as the main reason behind the dismal bottom-line performance.