Bet On These 5 Midwest Bank Stocks As Fed Rate Hike Looms
Zacks Investment Research | Aug 29, 2016 11:26PM ET
The banking sector always comes into focus when rate-hike speculation heightens, since it typically benefits from higher rates. While much speculation surrounding another rate hike has been doing the rounds in the market following the Dec 2015 hike, the hawkish comments of Federal Reserve Chair Janet Yellen recently sparked optimism.
On Aug 26, in a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, WY, Yellen stated, “Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” However, it must be kept in mind that the Fed’s decision to hike rates depends on two major criteria – improving economy and a 2% inflation.
Several issues including the Brexit-induced uncertainties, U.S. dollar appreciation and the upcoming Presidential election might cause delay in rate hike, nevertheless, the continued positive domestic economic factors such as a recovery in job market and increased household spending certainly increase the odds of a rate hike this December.
Banks benefit from a steep yield curve, i.e. when the spread between long-term and short-term rates is wide. The interest rates on deposits are usually tied to short-term rates while loans are often tied to long-term rates. This means that the potential rise in rates will enable the banks to charge more for loans, leading to an increase in their spread income.
An Investment Opportunity
Currently, out of more than 260 industries on our radar, the Midwest Banks space has a
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