US bank stocks rise as jumbo rate cut eases default risk, cost concerns

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Interest Rates,Bank Stocks,Federal Reserve

Elevated interest rates have weighed on loan growth and consumer spending this year, while also increasing fears of borrowers defaulting on their loans...

- U.S. bank stocks rose in premarket trading on Thursday, a day after the Federal Reserve cut interest rates by 50 basis points, which is expected to reduce deposit costs and alleviate pressure on borrowers.

"For banks, particularly those that hold mortgages and auto loans, there may be a benefit to spreads in the near term," said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. Borrowers looking for immediate relief could also refinance their loans and negotiate better repayment terms, lowering the risk of defaults.

The S&P 500 Banks Index, which tracks large-cap banks, has gained 17.5% this year, compared with an 18% gain in the benchmark S&P 500. The KBW Regional Banking Index is up 4.4% over the same period.Investor sentiment toward the sector had taken a hit after three major players collapsed in early 2023, in part due to higher rates racking up unrealized losses on their loan books.

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