U.S. bank stocks off to record start for 2022, fueled by hawkish Fed
BNN Bloomberg
Bank stocks have kicked off the new year with their best start in more than a decade as a hawkish tone from the Federal Reserve extends the cohort’s winning streak after the best annual performance since 2013.
Bank stocks have kicked off the new year with their best start in more than a decade as a hawkish tone from the Federal Reserve extends the cohort’s winning streak after the best annual performance since 2013.
The KBW Bank Index, which tracks 24 of the largest U.S. lenders, has jumped about 10 per cent so far this week, putting it on track for its biggest five-day gain to start a year ever. Investors have piled into bank shares amid a surge in U.S. bond yields as signs grow that the Fed may start to hike interest rates as soon as March.
Rising rates and an acceleration of loan growth are “the two biggest catalysts for investors to become more bullish on bank stocks,” Raymond James analysts including Wally Wallace and David Long wrote in a note.
This week’s surge, which is likely to include back-to-back record highs for the KBW Bank Index, got an extra boost on Wednesday after the Fed’s minutes revealed that policy makers discussed the possibility that a strengthening economy and higher inflation could require them to hike rates earlier and faster than previously anticipated.
Still, not everyone is convinced the blowout start to this year for bank stocks will continue. “The rush to grab rate exposure has resulted in outperformance in the super-regional names this week, and it’s just harder to see much upside from here,” said Baird analyst David George. “The risk/reward trade-off in the bank group is getting somewhat unattractive,” he added.
