Bank stocks have been looking more and more attractive in recent weeks as market participants anticipate a larger increase in federal spending to help support U.S. economic recovery in 2021.
Bank stocks have been looking more and more attractive in recent weeks as market participants anticipate a larger increase in federal spending to help support U.S. economic recovery in 2021.
So far this month, the SPDR S&P Bank ETF
So far this month, the SPDR S&P Bank ETF
Bank stocks' recent growth momentum started last month after the U.S Federal Reserve loosened buyback and dividend restrictions on Wall Street investment banks following the central bank's second stress test. This move demonstrated that the Fed has confidence in the strength of the U.S. banking system into the future.
Bank stocks' recent growth momentum started last month after the U.S Federal Reserve loosened buyback and dividend restrictions on Wall Street investment banks following the central bank's second stress test. This move demonstrated that the Fed has confidence in the strength of the U.S. banking system into the future.
Bank stock sentiment has grown more optimistic in recent weeks since President-elect Joe Biden's picked Wall Street friendly Janet Yellen to be his administration's Treasury Secretary. The results of the Georgia runoff elections establishing a Democratic-controlled Congress also benefited economic growth outlooks. Investors bet that a more Democratic government will lead to more fiscal stimulus, infrastructure spending, rising interest rates and bigger capital returns--all of which benefit bank stocks.
Bank stock sentiment has grown more optimistic in recent weeks since President-elect Joe Biden's picked Wall Street friendly Janet Yellen to be his administration's Treasury Secretary. The results of the Georgia runoff elections establishing a Democratic-controlled Congress also benefited economic growth outlooks. Investors bet that a more Democratic government will lead to more fiscal stimulus, infrastructure spending, rising interest rates and bigger capital returns--all of which benefit bank stocks.
And there are even more positive growth signals for bank stocks ahead.
And there are even more positive growth signals for bank stocks ahead.
On Tuesday, the U.S. Treasury 10-year yield rose to 1.165%, while the 2 year yield bumped up to 0.149%, signalling a steepening yield curve--the curve's steepest level since 2016.
On Tuesday, the U.S. Treasury 10-year yield rose to 1.165%, while the 2 year yield bumped up to 0.149%, signalling a steepening yield curve--the curve's steepest level since 2016.
A steepening yield curve benefits banks. As financial firms borrow money at short-term rates and lend at long-term rates, a steepening yield curve allows banks to earn more one leading and pay less on deposits, thus increasing profits.
A steepening yield curve benefits banks. As financial firms borrow money at short-term rates and lend at long-term rates, a steepening yield curve allows banks to earn more one leading and pay less on deposits, thus increasing profits.
While the steepening yield curve usually signals economic expansion and higher inflation rates in the coming years, it may trigger the central to raise interest rates to curb high inflation.
While the steepening yield curve usually signals economic expansion and higher inflation rates in the coming years, it may trigger the central to raise interest rates to curb high inflation.
The Fed is maintaining its loose monetary policy moving into the new year, with Chairman Jerome Powell affirming his commitment to keeping interest rates low for the foreseeable future during a live-stream Q&A session presented by Princeton University on Thursday, according to CNBC.
The Fed is maintaining its loose monetary policy moving into the new year, with Chairman Jerome Powell affirming his commitment to keeping interest rates low for the foreseeable future during a live-stream Q&A session presented by Princeton University on Thursday, according to CNBC.
The Fed has maintained its short-term borrowing rate near zero and is continuing to buy at least $120 billion in bonds each month as part of its efforts to keep the economy afloat as the coronavirus pandemic continues to harm economic activity.
The Fed has maintained its short-term borrowing rate near zero and is continuing to buy at least $120 billion in bonds each month as part of its efforts to keep the economy afloat as the coronavirus pandemic continues to harm economic activity.
"When the time comes to raise interest rates, we'll certainly do that, and that time, by the way, is no time soon," Powell stated, quoted by CNBC. Powell, however, is optimistic that the economy will recover at a faster-than-expected pace.
"When the time comes to raise interest rates, we'll certainly do that, and that time, by the way, is no time soon," Powell stated, quoted by CNBC. Powell, however, is optimistic that the economy will recover at a faster-than-expected pace.
"We were in a good place in February of 2020, and we think we can get back there, iI would day, much sooner than we had feared," the central bank leader said.
"We were in a good place in February of 2020, and we think we can get back there, iI would day, much sooner than we had feared," the central bank leader said.
Whether or not bank stocks continue their recent momentum throughout the year hinges on the success of the economy's expansion and how quickly the coronavirus pandemic will come under control. For now, sentiment is optimistic.
Whether or not bank stocks continue their recent momentum throughout the year hinges on the success of the economy's expansion and how quickly the coronavirus pandemic will come under control. For now, sentiment is optimistic.
