Bank Stocks Climb on Mexico Tariff Delay
11 June 2019 - 6:54AM
Dow Jones News
By Michael Wursthorn
Bank stocks rose Monday after the U.S.'s decision to hold off
implementing trade tariffs on Mexican imports brightened investors'
economic outlook.
The KBW Nasdaq Bank Index of large commercial lenders rose 1.1%
Monday to help lead the stock market higher, as yields on the
benchmark 10-year U.S. Treasury notched their biggest one-day gain
since April 1. The moves followed the Trump administration's opting
not to impose tariffs on billions of dollars of goods from Mexico,
removing a threat that had hampered bank stocks and the broader
market.
Shares of Bank of America Corp. rose 2%, while Wells Fargo &
Co. and JPMorgan Chase & Co. added at least 1.1% each.
Citigroup Inc., which gets about 7% of its global revenue from its
Mexican unit, climbed 2.2%.
Rises in yields are often good for banks since higher long-term
rates usually create a steeper yield curve, widening lenders'
profit margins as the spread between what they pay for funds and
what they charge borrowers expands.
The U.S.'s deal with Mexico to avoid trade tariffs removed a
potential economic hurdle that had caused investors to sour on
lenders. Before Monday, bond prices had been falling for five weeks
straight, causing yields on some short-term Treasury bills to
exceed those of longer-term bonds, an event also known as an
inverted yield curve -- which tends to presage a recession. At the
same time, the KBW bank index fell 10% in May.
Resurgent trade tensions with China last month started to upset
investors' economic outlooks. Traders worried the new levies would
further pressure a global economy already showing signs of slowing
down. The threat of additional tariffs against Mexico exacerbated
those concerns, analysts said, helping to send Treasury yields on
their biggest five-week slide in more than three years.
But those stocks appeared to be steadying even before Monday's
move in bond yields. Last week, Federal Reserve Chairman Jerome
Powell suggested the central bank could cut interest rates to keep
the economy expanding, sending major U.S. indexes to their best
weekly gains of the year.
Although lower rates are generally bad for banks, investors were
also considering the likelihood of a still-expanding U.S. economy
and the role lenders would play, said Devin Ryan, a banking analyst
with JMP Securities. Besides that, big U.S. banks had already
proved to investors over the last decade that they are capable of
making a profit in a low-rate environment.
The KBW bank index jumped 3.5% following Mr. Powell's speech on
Tuesday, its biggest one-day gain since late December.
"It's kind of a perverse move," said Mr. Ryan, referring to
those stocks' gains last week. "But we may now have an extended
business cycle, and that's what the market has found some comfort
in now that the Fed is going to be flexible."
Those stocks are now up 4.9% this month, pushing them up 12% for
the year.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
June 10, 2019 16:39 ET (20:39 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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