“Not much has changed fundamentally for banks. They still face increased regulatory pressure, and profitability has been difficult amid a flat yield curve and a Fed that has been on hold with interest rate increases this year,” reports CNBC.
Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector.
SEE MORE: Bullish Signs for Bank ETFs
“Optimism for the banks comes at a good time. Quarterly earnings reports for the biggest financial institutions start rolling in on Friday, so the recent rise could be in anticipation that the numbers won’t be as bad as feared,” according to CNBC. “Individually, Bank of America and Citigroup led the gains among the biggest banks, while SunTrust, Regions Financial and KeyCorp have led the way among regionals in October.”
Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins. The SPDR S&P Regional Banking ETF (NYSEArca: KRE) is up two-thirds of percent year-to-date.
For more information on the banking sector, visit our financial category.