On Thursday, many investors were kind to bank stocks. One particular clutch of five stocks did particularly well after an analyst upgraded them as a group. Two of the more prominent titles in the quintet were Bank of America (BAC 5.93%) and PNC Financial Services (PNC 4.78%), which rose by nearly 6% and almost 5%, respectively.
That’s one mega upgrade
The prognosticator behind the lifts was Odeon Capital’s Dick Bove, who published his new take on the five banks before market open. He lifted his recommendation on all to buy from the previous hold. In addition to Bank of America and PNC, the quintet included other familiar lenders Wells Fargo, U.S. Bancorp, and Truist Financial.
Bove’s series of upgrades were based on Federal Reserve Chairman Jerome Powell’s comments in the wake of the Fed’s interest-rate decision, which was handed down on Wednesday. The analyst said those comments were a “clear” indication that inflation has ended.
The Fed elected to hold its key interest rate steady that day. It also indicated a willingness to start reducing rates next year.
Lower rates bring increased demand for loans, especially for the big guys
Lower rates are a double-edged sword for banks. On one hand, they reduce the cost of loans, thereby raising demand for such products. On the other, all things being equal, the profit they earn from those cheaper borrowings is lower. Bank sector bulls likely believe that high-volume lenders admire Bank of America and PNC, with its large regional footprint, will benefit from that theoretical increased demand for loans.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, PNC Financial Services, Truist Financial, and U.S. Bancorp. The Motley Fool has a disclosure policy.
