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Due to their rate-sensitive nature, banks tend to benefit when the Fed tightens its monetary policy as an anti-inflationary measure. When interest rates rise, the income on bank assets like bonds and loans climb higher than their liabilities, such as deposits. The Fed will likely raise interest rates soon, which could help banks improve their profits. Furthermore, U.S. bank stocks rose recently when senior bankers and industry experts welcomed Federal Reserve Chair Jerome Powell’s nomination for a second term.
Given this backdrop, we think it could be wise to bet on fundamentally strong bank stocks Wells Fargo & Company (WFC) and U.S. Bancorp (USB). However, JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corporation (NYSE:BAC) do not look well-positioned to see their shares soar in the near term. So, these two stocks are best avoided now.
