U.S. bank stocks are marching higher a day after the U.S. Federal Reserve cut interest rates by 50-basis points.
Lower interest rates are expected to reduce deposit costs for the banks and alleviate pressure on consumers who have struggled with high interest rates over the past two years.
Shares of Wells Fargo (WFC) are up 2%, followed by Citigroup’s stock (C), up 1.9%, and Bank of America (BAC), whose share price has increased 1.7%.
The stock of JPMorgan Chase (JPM), the largest U.S. bank, is 1.3% higher after America’s central bank signalled that more interest rate cuts are likely in coming months.
Shares of investment banks such as Goldman Sachs (GS) and Morgan Stanley (MS) are also on the rise after the interest rate cut.
Elevated interest rates had negatively impacted the banks’ loan growth in recent years and led to higher default rates on existing loans, which had pressured stocks of the lenders.
The situation had required banks to set aside billions of dollars as a cushion against loan defaults. However, those pressures are now expected to ease as interest rates decline.
Automotive loans and home mortgages issued by the banks, in particular, are expected to get a boost as interest rates move lower in coming months.
Additionally, consumers are expected to refinance many of their loans at the banks and negotiate better repayment terms as rates fall, lowering the risk of future defaults.
The S&P 500 Banks Index, which tracks the stocks of the biggest U.S. lenders, has gained 17.5% this year, matching the year-to-date gain in the benchmark S&P 500 index.