What happened
After suffering steep losses in recent weeks due to a confluence of negative events, banks stocks rebounded sharply on March 13. Mega-banks JPMorgan Chase (JPM 0.26%), Bank of America (BAC +0.20%), Citigroup (C 0.03%), and Wells Fargo (WFC +0.22%), along with smaller banks such as SVB Financial (SIVB +0.00%), Western Alliance Bancorporation (WAL 0.41%), and Axos Financial (AX 0.71%), surged as much as 18% on Friday.
So what
Fears related to COVID-19 -- the disease caused by the novel coronavirus -- have gripped the world in recent weeks. Investors, fearful that the pandemic would drive the global economy into a recession, have sought shelter in safe-haven investments, including U.S. Treasuries. Interest rates have plunged in response.
Many financial institutions are likely to be hurt by this since lenders' profit margins tend to decline when interest rates fall. In turn, many bank stocks have seen their prices plunge in recent weeks.
However, President Trump's press conference on Friday regarding stepped-up measures to combat the spread of COVID-19 seemingly gave investors confidence that the U.S. could avert some of the direst potential outcomes of the pandemic. Interest rates jumped, and bank stocks surged in kind.
Image source: Getty Images.
Now what
If we begin to see COVID-19 infection rates slow in the U.S. and other parts of the world, interest rates will likely rebound. That, in turn, could lead to a powerful rally in bank stocks.
