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Why Shares of State Street Jumped in October

By Lou Whiteman – Updated Nov 6, 2019 at 8:14AM

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Quarterly results highlight the bank's strength in a difficult market.

What happened

Shares of State Street (STT 1.77%) climbed 11.6% in October, according to data provided by S&P Global Market Intelligence, as strong quarterly results helped ease investor concerns about the health of the financial services sector. State Street occupies a unique niche in the sector and used it to deliver solid quarterly results.

So what

Financial stocks were hard hit this summer by a combination of the Federal Reserve lowering interest rates, increasing trade tensions, and worrying signs of a potential recession in the U.S. State Street was no exception, falling more than 20% from May 1 through the end of August.

A banker does calculations at her desk.

Image source: Getty Images.

Those concerns began to ease in September, and State Street provided some reassurance for investors in mid-October, when the company released third-quarter earnings of $1.42 per share, beating the $1.39 consensus, on slightly higher-than-expected revenue. State Street earnings were fueled by strong fee revenue in its foreign exchange trading services, allowing the company to profit from some of the uncertainty that was weighing on financials.

Net interest income also came in better than expected, and State Street said it is on track to cut expenses by up to $400 million annually to improve profitability.

State Street is not a typical commercial bank catering to individuals and businesses but rather is focused on providing financial services to institutional investors and other market participants. The bank also sees the opportunity for growth from its $2.6 billion acquisition of Charles River Systems, a maker of investment management tools and software.

Now what

The quarter was far from perfect, with earnings per share down 24% year over year and sales off 3%, but some sort of a slowdown had been baked into expectations. State Street's results demonstrated the company's ability to generate fee and interest income even in difficult conditions, and the stock reacted accordingly.

With rates low and economic conditions uncertain, this is a dangerous time to be investing in financial stocks, but for those tempted to dive in, State Street provided evidence in October that it has the wherewithal to perform throughout the business cycle.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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