The 5th installment of the "Fed rate cut trade"! Major financial institutions hit record highs, is it a buying opportunity for financial stocks?
Following Fed Chairman Powell's statement that "it's time to cut interest rates," San Francisco Fed President Daly also indicated on the 26th that the start of interest rate cuts is appropriate. This week, it was stated that the Fed needs to cut interest rates in order to maintain the health of the job market. Richmond Fed President Barkin stated that although there are still risks of inflation overshooting, he supports an "adjustment down" in interest rates due to the cooling labor market, making a September rate cut the default path.
The Federal Reserve Board's monetary policy is shifting from tightening to easing.Central banks around the world are transitioning from tightening to easing.As central banks around the world cut interest rates and begin a new cycle of monetary easing, ...Which assets are becoming more attractive for investment?.
As mentioned in the previous article...Biotech stocks、Increasing the ratio of defensive stocks like utilities industry would be wise.、Consumer staples stocks、Telecom services stocksIn addition, another major sector benefiting from the Fed rate-cut cycleFinancial stockswill be discussed.
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The financial sector, which was once unpopular with many investors, seems to be changing. $Financial Select Sector SPDR Fund (XLF.US)$has risen by nearly 22% year-to-date, outperforming the 16% rise in. $S&P 500 Index (.SPX.US)$'s rise.
Warren Buffett recently reduced his significant investment in, which has had a negative impact on the financial sector. $Bank of America (BAC.US)$However, looking at the performance of the financial sector this year, major financial institutions have consistently set new record highs.
As the largest commercial automobile insurance company in the United States, $Progressive (PGR.US)$The stock has risen more than 60% year-to-date. The US insurance giant $Allstate (ALL.US)$、 $Berkshire Hathaway-B (BRK.B.US)$, the largest health international insurance company in the United States, $Aflac Inc (AFL.US)$, the world's largest insurance broker, $Arthur J. Gallagher (AJG.US)$all rose more than 33%.
Furthermore, the US private equity giant $KKR & Co (KKR.US)$, the settlement giant, $American Express (AXP.US)$, the banking giant $JPMorgan (JPM.US)$and $Goldman Sachs (GS.US)$, the leading fintech company, $Fiserv (FI.US)$has risen more than 29% year-to-date.
On the other hand, in addition to financial stocks, the related ETFs in the sector are also worth watching. Currently, the top 5 financial ETFs with the largest total assets in the US stock market are $Financial Select Sector SPDR Fund (XLF.US)$、 $Vanguard Financials ETF (VFH.US)$、 $Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$、 $Ishares U.S. Financial Etf (IYF.US)$、 $Direxion Daily Financial Bull 3X Shares ETF (FAS.US)$Showing a rise of 9% - 60% year-to-date.Increase rate of 9% to 60%.Shown.
- Interest rate cuts directly reduce the cost of funds for financial institutions and expand their profit margins. Banks can raise funds at low interest rates and lend at higher interest rates, increasing their spread income.
- The movement of the securities market also tends to become more active in an interest rate cut cycle, and all business areas of securities companies, including brokerage, investment banking, and asset management, are expected to grow.
- The insurance industry is also benefiting from interest rate cuts, as more people are seeking insurance products to preserve their assets and plan for the future in a low interest rate environment.
Wells Fargo is expected to outperform the benchmark index as bank stocks rebound due to expectations of a rate cut in the US. According to the bank's analysis, historically, rate cuts have always been beneficial for bank stocks unless there is an economic downturn.
For example, in 1995, 1998, and 2019, interest rate cuts boosted American bank stocks. In the first 1-2 weeks, they temporarily fell by about 6%, but then quickly surged again, typically ending at a high point about 21% above the post-cut low. On the other hand, if the economy has a soft landing, American bank stocks tend to outperform the S&P 500 index by nearly 10% in the quarter after the initial rate cut.
However, Wells Fargo has also warned that if an economic downturn accompanies the rate cut, the outlook for bank stocks would be unfavorable.
For example, in 1989, 2001, and 2007, bank stocks initially fell after the rate cut and then continued to underperform for several quarters, lagging behind the S&P 500 index by about 4% in total.
At the same time, the bank suggests that investment opportunities for bank stocks rebound are concentrated in the first quarter after the initial rate cut. In 7 out of the past 8 rate cut cycles, the performance of bank stocks has lagged behind the S&P 500 index during the first 3-12 months after the initial rate cut. As a result, the bank emphasizes that investors need to seize investment opportunities in the early stages of rate cuts and act quickly.
This article uses automatic translation in part.
Source: Market Watch, Bloomberg, moomoo
ーMoomoo news Kouchi
Source: Market Watch, Bloomberg, moomoo
ーMoomoo news Kouchi
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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HONDA N-ONE : Oh.
Bank stocks are rising due to interest rate cuts. Why~
張遼 : Does that mean bank stocks are strong?
182712976 : If you believe unquestioningly in information that leads individual investors to make critical mistakes, you'll regret it.
mozk : If you know how much the debt balance has been ballooning in America, you wouldn't want to invest in this sector right now. It may still go up, but investing in a minefield where you know there are mines is like jumping into a minefield.