U.S. bank stocks set to start record for 2022, fueled by Hawkish Fed

(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.

The KBW Bank Index, which tracks 24 of America’s largest lenders, jumped more than 10% this week to achieve its biggest five-day gain to start a record year. Investors have crammed into bank stocks amid a surge in US bond yields as signs mount that the Fed could start raising interest rates as early as March.

Rising rates and accelerating loan growth are “the two main 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 push, which included back-to-back records for the KBW banking index, received an additional boost on Wednesday after the Fed minutes revealed that policymakers discussed the possibility that a strengthening of the economy and higher inflation are forcing them to raise rates sooner. and faster than expected.

Yet not everyone is convinced that the boom at the start of the year for bank stocks will continue. “The rush to grab the exposure to rates has resulted in super-regional names outperforming this week, and it’s just harder to see a lot of upside from here,” said Baird analyst David George. “The risk / return trade-off in the banking group is becoming somewhat unattractive,” he added.

Either way, it won’t be long before the rally faces its next major hurdle. Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. are expected to kick off the fourth quarter earnings season next Friday, with the group looking to build on a broadly positive third quarter earnings package, despite continued weakness growth loans.

While most analysts agree that banks will meet expectations of accelerating loan growth, the spread of the omicron variant will test consumer and investment demand.

“First quarter loan growth may slow under the impact of the Omicron variant, but we expect growth to resume an upward trajectory throughout the remainder of 2022,” according to Wedbush analyst David Chiaverini.

(Price updates throughout)

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