The Fed's decision sparked the strongest bullish sentiment in 15 years, and all asset classes began a carnival upward pattern.
The lowest returns of ETFs that track different assets show that all types of assets have increased by at least 1%, surpassing the gains of all other Fed decisions since March 2009.
Judging from the recent trend in trading Japanese and US stocks, many investors betting on large technology stocks, encouraged by economic data and “the Fed's shift to trading,” have begun to set their sights on a wider range of other assets.$Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$It closed up nearly 5% on Thursday, breaking the high since March 8 and outperforming the market for two consecutive days.
Since March of this year, the successive bankruptcy of US regional banks has triggered turmoil in the financial industry, and the “sequelae” of the Fed's violent interest rate hike have appeared. The most fundamental reason that induced banks to go bankrupt was the increase in financing costs and the sharp drop in treasury bond prices due to the Fed's interest rate hike. Customers withdrew large amounts of cash in a short period of time, causing banks to settle their portfolios at a discount, resulting in huge losses.
However, Wells Fargo and Bank of America raised their target prices for the US banking sector after the Fed moved to a dovish stance on Wednesday.
Bank of America global research analyst Ebrahim Poonawala said that although investors have been re-examining their exposure to bank stocks in recent weeks, “with the support of the Fed's turning signals, interest rate changes may further drive FOMO (fear of missing out) sentiment.”
Whitney Tilson, founder of T2 Partners, believes that if the Fed starts cutting interest rates, regional bank stocks that were once hit hard have value. From a valuation perspective alone, he found that many high-quality companies traded at a lower price-earnings ratio, which was far below book value. Even if their bond portfolios and loan portfolios were priced at market value, their transaction prices were still significantly lower than their tangible book value.
Furthermore, there is no industry that is most affected by the Fed's interest rate cut more than loan companies.$Affirm Holdings (AFRM.US)$, $Upstart (UPST.US)$, $SoFi Technologies (SOFI.US)$Wait, fintech companies have also taken advantage of the trend. Among them, Affirm's stock price has soared more than 350% this year, soaring by more than 95% since November; SoFi has accumulated a cumulative increase of nearly 20% in the past two trading days.
According to comprehensive market analysis, there are three main driving factors:
Lower borrowing costs: Interest rate cuts mean commercial loan interest rates may fall, which for online loan platforms may mean they can get money cheaper. This may increase their ability to access capital, help expand their scope of business, or provide more competitive interest rates to borrowers.
Boosting demand for loans: Low interest rates often incentivize individuals and businesses to apply for loans. If interest rates fall, borrowing demand may increase, which could mean more borrowers seek their loan services.
Increase market demand: Interest rate cuts may stimulate overall economic activity and increase consumption and investment. This could lead to more people seeking loans, increasing market demand.
Looking specifically at individual stocks, Affirm is an independent third-party platform for “buy now, pay later” (BNPL) that provides payment+consumer credit. It requires a large amount of financial support and customers to fulfill their repayment obligations. Higher interest rates are putting pressure on it, but if interest rates fall in 2024, it is likely to improve consumer finances and help Affirm get the money it needs. Affirm will benefit from a surge of more than 70% in the number of orders using its service during the Thanksgiving holiday week.
Therefore, analysts at The Motley Fool believe that although Affirm's current stock price has dropped nearly 75% from its high in late 2021, there is still room for the company's stock price to rise if the consumer's willingness to spend is strong and the macroeconomic environment improves.
Upstart rose nearly 30% in just two days after the Federal Reserve announced its interest rate decision. The company used an AI-driven credit rating model to issue personal and car loans. Previously, rapidly rising interest rates had caused some damage to its business. If the Fed starts cutting interest rates, it will help Upstart's banking partners more easily seek loan opportunities, reduce borrower default rates, and improve business performance and stock prices.
Overall, the Fed's interest rate cut may bring lower capital costs and greater market demand to financial loan companies, helping to drive their business growth and increase market share. But this impact also depends on other macroeconomic factors and internal company management.
Editor/Corrine