Strong Jobs Report Lowers Big Rate Cut Chance: Banks Rejoice

The U.S. economy is continuing to grow. This is evident from the jobs report for June, which topped market expectations. Per the report, the U.S. economy added 224,000 jobs, a strong reversal from disappointing May 2019 numbers.

At the end of two-day FOMC meeting in June, the Fed had indicated that it could cut rates soon, given the economic slowdown and several other concerns. Nevertheless, better-than-expected jobs report will somewhat ease pressure on the Federal Reserve to cut interest rates at a faster pace.

Markets had been projecting a 50 basis points (bps) cut in interest rates. Now, with strong jobs report, expectations are for 25 bps cut. This seems to have cheered bank stock investors, as banks are one of the biggest beneficiaries of higher interest rates. Shares of majority of the banks rose on Friday.

The KBW Nasdaq Bank Index and SPDR S&P Regional Banking ETF (CSE:KRE) rallied nearly 1% and 1.2%, respectively, though the broader markets ended the day in red. Among the big U.S. global banks, shares of Citigroup (NYSE:C) and Bank of America (NYSE:BAC) gained 0.8% and 0.7%, respectively.

Also, several small and mid-sized banks with largely domestic operations, including Zions Bancorporation (NASDAQ:ZION) , BB&T Corporation (NYSE:BBT) , Comerica (NYSE:CMA) and Cullen/Frost Bankers, Inc. (NYSE:C) jumped in the range of 1.5-2%.

Nonetheless, the jobs report indicates that the pace of wage growth is slowing down. The average-hourly wage increased 3.1% year over year in June, marginally missing the markets expectations of 3.2%. This could be a cause of concern for the central bank.

Further, uncertainty related to the trade war still persists. Though there have been indications of resumption of trade talks between United States and China, the outcome is expected to take some time.

A few other matters including geopolitical tensions, low inflation level and slowing global economy are also expected to weigh on the minds of Fed officials, when they meet later this month to decide the next course of action.

All the above-mentioned banks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Comerica Incorporated (CMA): Free Stock Analysis Report

BB&T Corporation (BBT): Free Stock Analysis Report

Bank of America Corporation (BAC): Free Stock Analysis Report

Citigroup Inc. (C): Free Stock Analysis Report

Cullen/Frost Bankers, Inc. (CFR): Free Stock Analysis Report

Zions Bancorporation (ZION): Free Stock Analysis Report

SPDR S&P Regional Banking ETF (KRE): ETF Research Reports

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