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Here's Why Big Bank Stocks are Rising Monday

By Matthew Frankel, CFP® – Apr 27, 2020 at 2:16PM

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The financial sector is one of the best-performing parts of the market -- here's what you need to know.

What happened

The stock market is starting the week on a high note, with the Dow Jones Industrial Average and S&P 500 index both up by approximately 1.5% at 2:45 p.m. EDT.

While the overall market is strong, the financial sector is one of its best-performing parts. All of the "big four" banks are handily outperforming the broader averages -- Bank of America (BAC 1.64%) and Wells Fargo (WFC 1.95%) were both higher by 5%, Citigroup (C 1.90%) was up by more than 7%, and JPMorgan Chase (JPM 2.02%) had risen by more than 4% on the day.

Bank sign on exterior of office building.

Image source: Getty Images.

So what

Monday's action seems to be fueled by optimism that the U.S. economy is slowly starting to reopen. Several states have begun to open types of businesses, and more are planned for the near future.

Bank stocks have been particularly hard-hit by the COVID-19 pandemic and accompanying economic shutdown. There has been a great deal of uncertainty when it comes to loan defaults -- if the pandemic lasts for longer than expected, it could lead to a massive wave of consumers and businesses unable to pay their debts. All of these banks added billions to their loan-loss reserves during the first quarter, and it's simply too early to tell how bad things will get.

What's more, interest rates have plunged to record lows, and this is likely to put a squeeze on bank profit margins. On Monday, the benchmark 10-year Treasury yield rose by nearly seven basis points to 0.662%, which is likely to help bank stocks.

Now what

We're a long way from being out of the woods on the coronavirus crisis, but we're finally starting to see signs that things are going to return to some sense of normalcy sooner rather than later. And bank investors are understandably happy to see it.

Matthew Frankel, CFP owns shares of Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
$43.40 (1.90%) $0.81
Bank of America Corporation Stock Quote
Bank of America Corporation
$31.07 (1.64%) $0.50
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$107.99 (2.02%) $2.14
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$40.81 (1.95%) $0.78

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

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