Veteran analyst upgrades 5 bank stocks thanks to Powell

This post was originally published on this site

Analysts said Federal Reserve Chairman Jerome Powell’s comments yesterday were “clear” that the inflation has ended. Importantly, they point out, Powell indicated that the time for discussing monetary policy easing is upon us. Additionally, he admitted that actual interest rates closely aligned with the aimed 2.0% inflation rate. As such, they believe the next adjustment in interest rates is likely to be down.

The analysts’ prior view of caution on bank stocks was predicated on the view that rates would be “higher for longer”, thereby lowering the asset values of the banking industry. “The prospect of lower rates, no matter how far away (probably the second half of 2024), reverses this sequence,” analysts state. The prospects of lower rates will make bank asset values rise, thus the need for equity offerings is diminishing, and secular earnings growth rates will increase. Overall, “bank stocks are worth more,” they said. Moreover, there’s a possibility of the yield curve reshaping as short-term rates fall below long-term rates, potentially benefiting bank net interest margins.