Last Friday, officials from the three major central banks in the United States, the United Kingdom, and Europe expressed in unison that they will enter an interest rate cut cycle in the coming months, or continue the pace of interest rate cuts before.
This marks the end of the era of high borrowing costs around the world as the global economy gradually recovers from the high inflation period after the epidemic, and the curtain of major central banks' loose policies will also be opened next month.
Affected by this news, US bank stocks rose across the board, with regional bank indices performing well.$Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$Creating the largest intraday increase in eight months; it rose more than 6% at one point, and closed up 5.08%.
Subsequently, the comments of two Federal Reserve officials further strengthened market expectations, namely that the possibility of a 25 basis point rate cut by the Federal Reserve in September has significantly increased.
Atlanta Federal Reserve Bank President Bostic stated that a rate cut in September or November is "definitely possible", and an initial 25 basis point rate cut "may be the most appropriate approach". Philadelphia Fed President Harker also stated that he expects the Fed to start with a 25 basis point rate cut, and if the labor market suddenly deteriorates, he will be open to larger rate cuts.
Boosted by the positive impact of interest rate cuts, regional bank stocks are benefiting.
Market analysis generally points out that after two years of tightening policies, the Fed's monetary policy is about to shift to loose, which is expected to significantly alleviate the operational pressure of US banks, especially some regional banks; For a long time, these banks have been trying to overcome the adverse impact of the high interest rate environment on their profits and borrowers. With the increase in rate cut expectations, regional banks are expected to reduce their debt costs, as the decrease in deposit interest paid to depositors will directly increase the bank's profit margin.
CFRA regional banking analyst Yakom pointed out that rate cuts not only bring immediate pressure relief to regional banks, but will also have a chain reaction in the commercial real estate market, especially in office buildings and securities investment portfolios. Compared to large banks, regional banks have a more significant risk exposure in commercial real estate, and the recovery in this area will bring them new growth opportunities, partially offsetting the losses caused by past risk exposure.
In addition, facing the upcoming policy shift, top executives of several regional banks have expressed optimistic expectations for the future. Bank of America CFO Stern emphasized that the bank is satisfied with the adjustment of loan pricing after the rate cut, believing that this will help improve the bank's profitability. PNC Bank CEO Demchak has provided a more specific outlook for the future, stating that the bank is steadily making progress towards its goal of achieving record net interest income growth by 2025, reflecting a firm confidence in economic recovery and improvement in banking performance.
Currently, according to CME data, the market has a 100% bet that the Fed will cut interest rates in September, with a 61.5% probability of a 25 basis point cut and a 38.5% probability of a 50 basis point cut.
Wall Street analysts are optimistic about investment opportunities in the banking sector.
Currently, several Wall Street analysts have a positive outlook on bank stocks. Mike Mayo of Wells Fargo pointed out that improvements in profitability, interest rates, and regulatory environment make bank stocks more attractive. Scott Chronert of Citigroup believes that bank valuations are reasonable and will be less affected by tariffs, and the dovish stance of the Fed will benefit the banking industry. Jamie Cox of Harris Financial said that regulatory relaxations and steeper yield curves make bank stocks regain investment value.
Among them, Betsy Graseck of Morgan Stanley emphasized that stable profits and the recovery of capital market activities are key factors driving the rise in stock prices, especially the transformation of net interest income from headwind to tailwind, providing momentum for performance growth in the second half of the year and 2025. He is particularly bullish.$Citigroup (C.US)$,$JPMorgan (JPM.US)$And.$Wells Fargo & Co (WFC.US)$It is expected that these banks will accelerate share buybacks and increase revenue.
Gerard Cassidy, an analyst at Royal Bank of Canada, predicts a positive outlook for bank stocks in the next 18 months. He expects the Fed's interest rate cut to reduce bank financing costs, while the expansion of the US economy will drive loan growth. The bank also believes that banks will return excess capital through share buybacks and dividends, and advises investors to increase their holdings of bank stocks.
Overall, Wall Street analysts are optimistic about the future performance of bank stocks, particularly those banks that are able to actively manage capital and seize market opportunities, as macroeconomic conditions, regulatory environment, and the profitability of banks improve.
How to seize investment opportunities in the US bank sector?
In addition, in order to save time and effort in stock selection and to capture the opportunities of the overall rise in the banking industry, investors can also consider investing in bank stock exchange-traded funds (ETFs) in addition to selecting individual bank stocks, so as to conveniently follow the upward trend of the entire industry. Based on the gains last Friday:$Invesco Kbw Regional Banking Etf (KBWR.US)$,$First Trust Nasdaq Aba Community Bank Index Fund (QABA.US)$,$Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$All rose more than 5%.$Spdr S&P Bank Etf (KBE.US)$rose more than 4%.
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