The much-awaited Federal Reserve Open Market Committee (FOMC) meeting regarding the next rate hike will commence later today. Per the CME Group FedWatch tool, the odds of a hike this time are as high as 94%. A slew of strong economic data and favorable comments from Fed officials have driven up the chances for the eighth rate hike since December 2015.
The central bank’s decision will not be a surprise for the markets and investors as they have already factored in a 25-basis point rise to 2.25%. Strong retail sales, an improving housing market, firming inflation rate, low unemployment (almost near a 50-year low of 3.9%) and higher wage rate growth will further provide support to the Fed’s decision. Moreover, Fed officials have been making a strong case for continuation of the hawkish stance. Even Lael Brainard, known to be one of the most dovish members of the FOMC, in a speech last month at the Detroit Economic Club, hinted that the monetary policy will likely continue to tighten for some time. So what matters now is the Fed’s view about pace of future rate hikes. While the policy makers are already signaling an aggressive rate hike pace, further indication of the same is expected from the policy statement of the Fed chairman Jerome Powell.
VIDEO No matter what the Fed’s stance is, the finance sector as a whole (except REITs) gains from rising rates. Notably, banks are the biggest beneficiaries. A steeper yield curve helps banks to increase revenues. Also, rising rates reflect an improving economy. As the banking industry is largely dependent of the nation’s economy, this further supports profitability. Bank Stocks to Avoid Right Now While banks continue to witness an uptick in net interest income and net interest margin driven by rising rate environment, their profitability is under pressure amid slowdown in loan demand, flattening of the yield curve, rising expense base (mainly due to investments in technology upgrades) and trade war concerns. To overcome these challenges, banks continue with measures like slashing jobs, reducing footprint and restructuring operations. Banks are also looking for avenues to diversify revenue sources and even trying to expand inorganically. But these efforts are not enough to generate significant returns in the near term. So, we suggest avoiding a few banking stocks that don’t look attractive even in a favorable rate hike environment. While it’s not easy to select such stocks from the vast banking sector universe, we have taken the help of Zacks Stock Screener to make this task relatively simpler. We have shortlisted five banking stocks with a market capitalization of at least $2.5 billion and a VGM Score of D or F. Further, these stocks carry a Zacks Rank #4 (Sell) or 5 (Strong Sell). You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here F.N.B. Corporation ( FNB - Free Report) : With a market cap of $4.3 billion, this bank currently has a Zacks Rank #4 and VGM Score of D. Further, the company’s Zacks Consensus Estimate for earnings was revised 1.8% downward to $1.10for 2018, over the past 90 days. Simmons First National Corporation ( SFNC - Free Report) :With a market cap of $2.9 billion, the company has a Zacks Rank #4 and VGM Score of D. The Zacks Consensus Estimate for the company declined 1.3% to $2.33 for the current year, over the past 90 days. South State Corporation ( SSB - Free Report) : Over the past 90 days, the company’s Zacks Consensus Estimate for 2018 has moved 2.6% lower to $5.73. With a market cap of $3.1 billion, this bank currently has a Zacks Rank #4 and VGM Score of D. Umpqua Holdings Corporation ( UMPQ - Free Report) : With a market cap of $4.8 billion, this stock currently has a Zacks Rank #4 and VGM Score of D. Over the past 90 days, the Zacks Consensus Estimate for the company has beenrevised 4.1% downward to $1.41for 2018. Valley National Bancorp ( VLY - Free Report) : This bank, with a market cap of $4 billion, currently has a Zacks Rank #4 and VGM Score of D. The Zacks Consensus Estimate for the company has declined 4.5% to 85 centsfor 2018, over the past 90 days. More Stock News: This Is Bigger than the iPhone! It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market. Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>