A glorious time for banks


A decade ago, a financial crisis hit the American economy hard and pushed the banking sector into a full-fledged crisis.

In my opinion, these days US banks are generally well-capitalized and on an earnings tear.
Tax cuts, rising interest rates and a robust economy powered bank profits to a record $60.2 billion in the second quarter.

That eclipsed the $56 billion in profit that banks earned during the first quarter.

 

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Banking Stocks

The KBW Bank Index, the benchmark stock index for the banking sector, is up 20% over the past year.

 

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The shares of JPMorgan Chase (JPM), also on an earnings roll, are up about 28% over the past year.

 

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Takeaway

But I think not all the news is good for banks, given the storm clouds looming on the horizon.

In my view, one is the fact that the yield curve is flattening. That is, the spread between short-term rates and long-term rates is narrowing.

A flat yield curve often expresses investor pessimism about the future.

An inverted yield curve, in which long-term rates dip lower than short-term rates, has been deadly accurate in predicting economic downturns.

For now, though, in my opinion, the banks are in a good spot and a universe away from the dark days of the US financial crisis.


Photo Credit: Stiller Beobachter via Flickr Creative Commons

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Xavier Brenner
Xavier Brenner
Xavier Brenner has covered global market, business and economic trends for Interactive Brokers Asset Management since 2013. An experienced financial journalist, Brenner offers analysis and insights on the stories that matter to the discerning investor.