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The heightened rate-hike speculation, along with recovering health of the domestic economy, ushered in fortunes for the financial sector in the month of August. In fact, financial stocks rallied so much in August that the S&P 500 Financials (Sector) index booked a return of 3.57% as against the 0.17% loss incurred by The Dow Jones Industrial Average (DJI) and the 0.12% drop of the S&P 500.
Though the low-rate environment has certainly proved to be a boon for the stock market in the past, it acted as a drag to the financial sector. Brexit-induced uncertainties also added to the woes.
However, shrugging off those concerns, the banking industry raised hopes for better returns as they benefit from a steep yield curve – i.e. when the spread between long-term and short-term rates is wide. With interest rates on deposits being usually tied to short-term rates and for loans tied to long-term rates, any potential rise in rates will provide scope to these banks to charge higher for loans. This will eventually boost their spread income.
For insurance companies as well, such environment raises the ability to invest their new premium income in higher-yielding securities, leading to solid future returns. Moreover, brokerage firms earn interest income on un-invested cash in customer accounts. So, a high rate is a positive for their investments.
Fed Officials Induced Optimism
Icing on the cake was Fed chair Janet Yellen’s hawkish comment on Aug 26 at the Jackson Hole economic symposium. 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.”
Showing his support for the same, Fed Vice-chairman Stanley Fisher, in an interview with CNBC, remarked that Yellen’s speech was “consistent” with a possible two rate hikes this year. He further said that “we’re reasonably close to what is thought of as full employment. The inflation rate this year is higher than last year’s. It’s still not up to 2 percent. But it’s been growing.”
4 Financial Stocks That Excelled in August
Greenhill & Co., Inc. is a leading independent investment bank that provides financial advice on significant mergers, acquisitions and restructurings; assists private funds in raising capital from investors; and manages merchant banking funds.
Primerica, Inc. (PRI - Free Report) provides financial products and services. It assists its clients in meeting their needs for term life insurance, which it underwrites, and mutual funds, variable annuities and other financial products, which it distributes primarily on behalf of third parties.
The RMR Group Inc. (RMR - Free Report) primarily provides management services to publicly-owned real estate investment trusts and real estate operating companies.
Essent Group Ltd. (ESNT - Free Report) operates as a private mortgage insurance company through its subsidiaries. It serves originators of residential mortgage loans, such as regulated depository institutions, mortgage banks, credit unions, and other lenders.
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>
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These Financial Stocks Outperformed in August
The heightened rate-hike speculation, along with recovering health of the domestic economy, ushered in fortunes for the financial sector in the month of August. In fact, financial stocks rallied so much in August that the S&P 500 Financials (Sector) index booked a return of 3.57% as against the 0.17% loss incurred by The Dow Jones Industrial Average (DJI) and the 0.12% drop of the S&P 500.
Though the low-rate environment has certainly proved to be a boon for the stock market in the past, it acted as a drag to the financial sector. Brexit-induced uncertainties also added to the woes.
However, shrugging off those concerns, the banking industry raised hopes for better returns as they benefit from a steep yield curve – i.e. when the spread between long-term and short-term rates is wide. With interest rates on deposits being usually tied to short-term rates and for loans tied to long-term rates, any potential rise in rates will provide scope to these banks to charge higher for loans. This will eventually boost their spread income.
For insurance companies as well, such environment raises the ability to invest their new premium income in higher-yielding securities, leading to solid future returns. Moreover, brokerage firms earn interest income on un-invested cash in customer accounts. So, a high rate is a positive for their investments.
Fed Officials Induced Optimism
Icing on the cake was Fed chair Janet Yellen’s hawkish comment on Aug 26 at the Jackson Hole economic symposium. 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.”
Showing his support for the same, Fed Vice-chairman Stanley Fisher, in an interview with CNBC, remarked that Yellen’s speech was “consistent” with a possible two rate hikes this year. He further said that “we’re reasonably close to what is thought of as full employment. The inflation rate this year is higher than last year’s. It’s still not up to 2 percent. But it’s been growing.”
4 Financial Stocks That Excelled in August
Greenhill & Co., Inc. is a leading independent investment bank that provides financial advice on significant mergers, acquisitions and restructurings; assists private funds in raising capital from investors; and manages merchant banking funds.
Zacks Rank #2 (Buy)
VGM Score: ‘B’
Price Change (4 weeks): + 17.64%
Primerica, Inc. (PRI - Free Report) provides financial products and services. It assists its clients in meeting their needs for term life insurance, which it underwrites, and mutual funds, variable annuities and other financial products, which it distributes primarily on behalf of third parties.
Zacks Rank #2
VGM Score: ‘B’
Price Change (4 weeks): + 13.05%
The RMR Group Inc. (RMR - Free Report) primarily provides management services to publicly-owned real estate investment trusts and real estate operating companies.
Zacks Rank #1(Strong Buy)
VGM Score: ‘A’
Price Change (4 weeks): +12.32%
Essent Group Ltd. (ESNT - Free Report) operates as a private mortgage insurance company through its subsidiaries. It serves originators of residential mortgage loans, such as regulated depository institutions, mortgage banks, credit unions, and other lenders.
Zacks Rank #2
VGM Score: ‘B’
Price Change (4 weeks): + 11.77%
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>