Shares of Western Alliance Bancorp (WAL -0.14%) jumped 7% on Tuesday, following a sharp rebound in interest rates.
Fears surrounding the COVID-19 coronavirus epidemic and the related economic fallout have sent investors running toward safe-haven investments -- most notably U.S. Treasuries -- in recent weeks. This, in turn, has led to a sharp decline in interest rates. (Interest rates move inversely to bond prices, so when investors bid up the price of bonds, rates fall.)
Bank stocks have suffered because of this, since lenders' profit margins tend to fall when interest rates decline. Just yesterday, Western Alliance Bancorp's shares plunged after interest rates fell sharply to historic lows.
Today, however, news broke that President Trump was seeking to implement a 0% payroll tax rate, which would reportedly go into effect for the rest of 2020. The news helped to spur a powerful rebound in interest rates, as investors grew hopeful that tax cuts could help to ward off a coronavirus-driven recession. This, in turn, helped to fuel a rally in Western Alliance and other bank stocks.
Tax cuts could certainly help to stimulate the economy, which would be likely to boost demand for the type of loans Western Alliance Bancorp provides. That, combined with the potential for interest rates to continue to march higher, could lead to further gains for Western Alliance Bancorp's shares.