J.P. Morgan's Record High Crowns Bank-Stock Rebound -- Third-Quarter Report
By Telis Demos and David Reilly
Interest rates whipsawed bank stocks in the third quarter and are likely to be the dominant force for shares through the end of the year, despite investor optimism around a tax-code overhaul.
The S&P financials closed the quarter at a post-financial-crisis high, bringing their year-to-date rise to about 11%. But that fell short of the S&P 500's gain of 12.5%.
The performance reflected that banks stocks, after surging in the wake of last November's election, have struggled at times this year to maintain their momentum.
In late August and early September, for example, bank stocks tumbled. That mirrored a drop in the yield of the 10-year Treasury, which fell to 2.04% from 2.39% in July, amid mounting hurricane concerns and rising geopolitical tensions.
As hurricane damage proved to be less than the most-dire projections, the yield reversed course and climbed to 2.33% by the end of the month. Bank stocks rose along with it.
After dropping about 5% between early August and early September, J.P. Morgan Chase & Co. bounced back by nearly 8%. The bank, the biggest in the U.S. by assets and market value, ended the quarter at a record close of $95.51 a share.
The Trump administration's unveiling of a tax-overhaul plan near the end of September gave bank stocks an added fillip.
The tax "proposal is a tailwind for the sector," said Jason Benowitz, senior portfolio manager at Roosevelt Investment Group, a New York-based asset manager with $3 billion under advisement. "The banking sector depends on economic growth, and to the extent we get tax reform that flows through to better growth, that supports the stocks."