Financials help propel S&P 500 to record high

Dhaka,  Tue,  25 July 2017
Published : 20 Jun 2017, 17:09:08
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Financials help propel S&P 500 to record high

Financials helped propel the S&P 500 to a record peak on Monday as concerns over declining bank profitability were offset by expectations of further policy tightening from the Federal Reserve and hopes of softer regulation, according to a global media report Tuesday. 

The sector has found renewed vigour following proposals to soften post-crisis financial regulations and a decision to raise interest rates from the Federal Reserve last week, alongside its intent to begin to unwind its $4.5tn balance sheet as early as this year.

Bank stocks have struggled for much of this year as expectations for growth and inflation stemming from a stimulative economic agenda from the Trump administration have subsided. Combined with lower inflation in recent months, longer-dated interest yields have fallen, compressing their relationship with short-term interest rates.

The yield curve is a key metric for bank profitability as it highlights the ability of lenders to earn money on longer-dated loans against shorter-dated funding.

Analysts at Morgan Stanley pointed out that while a steeper yield curve is important for regional banks, larger, more diversified banks benefit more directly from an increase in short-dated interest rates and indications that the central bank is willing to tighten policy again.

 
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