Regional bank stocks are breaking out, and they may be able to continue to climb even if second quarter earnings results are modest. The SPDR S & P Regional Bank ETF has risen for six straight trading sessions and on Monday closed at its highest level since December. The regional bank ETF's 12.5% rally in July has coincided with declining bond yields and increased confidence among traders that the Federal Reserve will start cutting interest rates in September.
Regional banks have struggled during the post-pandemic rate-hiking cycle, as the rapid rise in rates hurt their core business of borrowing short-term in the form of deposits, which have risen in cost, while making long-term loans. Commercial real estate is also a weak spot for smaller banks compared to their more diversified, larger peers. The group still trades below historical valuations more than a year after the failure of Silicon Valley Bank, according Bank of America said.
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