The general consensus has been that banks and other financial services companies will begin seeing their earnings rise once the Fed starts to move interest rates higher. The million dollar question has been when exactly will that happen. Following the December 2015 rate hike, the Fed Dot Plot report indicated that members were preparing to move the Fed Funds rate higher perhaps as many as four times in 2016. So far, the can has continued to get kicked down the road as a combination of Brexit, slower than expected growth and low inflation have put the Fed on pause.
The Fed, however, is looking like it's finally getting ready to move and that's been a good thing for bank stocks. Since the Brexit vote low on June 27, the SPDR S&P Bank ETF (NYSEARCA:KBE) has returned nearly 22%, largely on the prospect of higher rates on the way. During the same time, the S&P 500 has returned 7%.
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