For Immediate Release
Chicago, IL –November 1, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets.
Here are highlights from Thursday’s Analyst Blog:
Are Bank Stocks Worth Buying on Rate-Cut Pause?
In order to shield the U.S. economy from the adverse impact of trade conflict and a global downturn, the Federal Reserve (as expected) announced a quarter-point cut in the interest rates. The benchmark federal funds rate now stands at 1.50% to 1.75%.
This is the third time this year that interest rates have been lowered. Earlier, the central bank had slashed rates in July and September.
The Federal Open Market Committee (FOMC) statement again emphasized that the U.S. economic growth remained healthy, with “solid” job gains and household spending “rising at a strong pace.” However, the statement noted that business fixed investment and exports continued to “remain weak.”
Besides, the FOMC changed the language in its statement, replacing “act as appropriate to sustain the expansion” with “assesses the appropriate path of the target range for the federal funds rate.”
Later in the press conference, Chairman Jerome Powell, said, “We believe monetary policy is in a good place.”
He further added, “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2 percent objective.”
This, thus, indicates a pause on future tempering except for a sharp slowdown in the economy.
Powell also noted the risks associated with trade tensions and Brexit are showing signs of waning. These two were the primary reasons cited by the central bank while announcing previous two rate cuts.
Economy Losing Steam
Just hours before the rate cut announcement, the initial data released by the Commerce Department showed that economic growth has slowed down. The U.S. economy grew at the rate of 1.9% in the third quarter.
Though it topped the economists’ forecast of 1.6%, it was below the first quarter and second-quarter growth rates of 3.1% and 2%, respectively. Weakness in business investment was the primary reason for the decline, while improved consumer spending rendered some support.
Where Do Banks Stand Now?
As we all know, banks thrive amid rising rate environment and strong economic growth. But at present, both seem to be going against the banks.
Interest rate cuts have placed banks in a disadvantageous position. Almost all banks, big and small, will be adversely impacted by lower interest rates.
The two rate cuts in the third quarter have already hurt banks’ net interest income (NII) and compressed net interest margin (NIM) — the main indicator of a bank’s profitability. This, along with soft lending scenario, mainly in the areas of commercial and industrial, and commercial real estate is expected to continue hampering banks’ financials.
Notably, banks have been warning investors of a disappointing NII and NIM growth picture for 2019. But a pause signal from the central bank is expected to go in favor of banks with no further rate cut expected in the near term.
Over the last several quarters, banks have been getting ample support from the economy, but now this also seems to be diminishing. This is likely to hurt banks’ asset quality as well.
Big banks are somewhat better positioned to overcome this challenging backdrop on the back of their global operations and diversified revenue streams. But for smaller domestic banks, the current situation will be a bit tricky.
Nonetheless, banks are undertaking measures including technological advancements, opportunistic acquisitions and cost-savings initiatives. These efforts along with conservative lending policy and strong balance sheet will definitely help banks tide over the difficult times.
Free: Zacks’ Single Best Stock Set to Double
Today you are invited to download our just-released Special Report that reveals 5 stocks with the most potential to gain +100% or more in 2020. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This pioneering tech ticker had soared to all-time highs and then subsided to a price that is irresistible. Now a pending acquisition could super-charge the company’s drive past competitors in the development of true Artificial Intelligence. The earlier you get in to this stock, the greater your potential gain.
Download Free Report Now >>
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.