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Why Bank Stocks Soared on Friday

By Joe Tenebruso - Mar 15, 2020 at 2:00PM

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A rebound in interest rates helped to ignite a rally in this beaten-down sector.

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 -1.51%), Bank of America (BAC -2.78%), Citigroup (C -2.90%), and Wells Fargo (WFC -3.54%), along with smaller banks such as SVB Financial (SIVB -2.04%), Western Alliance Bancorporation (WAL -3.61%), and Axos Financial (AX -2.99%), 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.

A person in a business suit pointing to a chart that rises, then falls, and then rises again.

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.

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Stocks Mentioned

SVB Financial Group Stock Quote
SVB Financial Group
$438.86 (-2.04%) $-9.13
Bank of America Corporation Stock Quote
Bank of America Corporation
$34.99 (-2.78%) $-1.00
Citigroup Inc. Stock Quote
Citigroup Inc.
$49.57 (-2.90%) $-1.48
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$120.33 (-1.51%) $-1.85
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$42.16 (-3.54%) $-1.54
Western Alliance Bancorporation Stock Quote
Western Alliance Bancorporation
$74.52 (-3.61%) $-2.79
Axos Financial, Inc. Stock Quote
Axos Financial, Inc.
$35.68 (-2.99%) $-1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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