Regional Bank Stocks Bounce Back This Week After Terrible Woes of Spring Banking Crisis
Key takeaways
- Regional banks have seen gains between 6% and 12% in fresh rally
- The shift comes as futures price in a likely pause from the Fed on interest rates, giving banks some breathing room
- We could see another regional bank downturn if interest rates rise further in the coming months
It’s been a rough ride for US regional banks ever since the collapse of Silicon Valley Bank toppled a couple of peers with it and sent the surviving financial institutions’ stock prices tumbling. This week a stocks rally gave fresh hope to the struggling sector — let’s get into the details.
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What’s happening with regional bank stocks this week?
Regional banks have performed well in the last few days in a welcome change. Zions Bancorp and KeyCorp have risen nearly 9% in five days and US Bancorp is up 6.2% in the same time period, as is Comerica by over 12%.
The KBW Nasdaq Regional Banking Index has climbed 3.5% in the last 24 hours and is up over 14% in the last week, while the S&P 500 Banks Index has gained 1.3% on Thursday and 5.7% in the last five days.
The rally comes at the same time it emerged regional bank executives buying shares in their companies hit a three-year high in Q2 of this year to shore up confidence after the ripple effect of Silicon Valley Bank’s collapse on the market.
Could the rally continue?
The Fed’s likely pause on interest rate increases is driving the regional banks’ rally. The CME FedWatch tool currently puts a pause at around 80% ahead of the Fed’s meeting next week.
The spike in share prices extended to bigger banks like Morgan Stanley, Bank of America and Wells Fargo, all of which saw modest rises. But we could see a reversal of these fortunes if the Fed decides on a shock increase next week and surprises the markets. It’s unlikely because the Fed wants to maintain calm and order.
But rate increases after this month aren’t off the table while inflation remains stubborn. What’s possible in the future is that we see the Fed take further action and trigger another banking meltdown like in March, but it depends on how the regional banks’ balance sheets are holding up.
The bottom line
The regional bank shares rally it a vote of confidence in a sector that sorely needed a win after months of turmoil. Unfortunately, it could be short-lived if we see interest rates rise further in July, which would add more pressure on bank deposits — but let’s see what the economic data holds.
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