Banks that rely heavily on lending products for revenue have been hit by higher interest rates. But capital markets expect rate cuts in 2024. That could give bullish vibes for regional banks.
It’s not just higher interest rates that have been putting downward pressure on regional banks. A spate of bank failures also shook the confidence in the banking system earlier this year. But brighter prospects are ahead in 2024, with the expectation that the Fed will loosen monetary policy.
“Following bank failures and aggressive interest-rate hikes, regional lenders face headwinds in higher funding costs, muted lending, tougher regulation and weakening credit quality,” reported Bloomberg. “With the rising rate cycle nearing an end, net-interest margins could reach a bottom over the next few quarters, while potential rate cuts in 2024 would ease deposit pressure.”
At the current valuations, such banks could also be offering plenty of future upside for investors. That, once again, will hinge on the pace of rate cuts amid weakening inflation.
“Though valuations reflect uncertainty and weaker earnings profiles, sentiment may be improving if inflation continues to dissipate and longer-term yields retreat,” the report added.
Some market experts on Wall Street already forecasting a regional bank recovery in 2024. That said, traders may want to keep an eye on the Direxion Daily Regional Banks Bull 3X Shares (DPST).