Bank stocks and corporate bonds hold gains on flat inflation report and Fed update

By Steve Gelsi

Tame CPI data send investors back into beaten-down regional-bank stocks, while yields fall on bank bonds

Bank stocks held on to gains on Wednesday after the Federal Reserve kept rates steady and a tame monthly inflation gauge sparked optimism in the sector.

Advances in bank stocks were more muted than earlier in the session, when a key inflation indicator stoked hope of interest-rate cuts by the Federal Reserve this year, possibly as early as September.

Some pundits now expect one 0.25% rate cut this year, while others forecast that there will be no rate cuts in 2024.

See: Live Fed rate decision

Lower interest rates could help ease jitters around the cost of commercial-real-estate refinancing, as office-property values in many areas remain depressed due to low demand for space, and as loans from banks come due.

The closely watched monthly consumer-price index for May was unchanged for the first time in about two years. The reading was better than the forecast from economists polled by the Wall Street Journal, which was for a 0.1% increase from the previous month.

"The latest CPI print was encouraging but will need to be ratified by incoming data over coming months before the Fed will be comfortable cutting rates," Daniel Murray, deputy head of global research at EFG Asset Management, said in a statement.

Financial stocks in the S&P 500 SPX rose nearly 2% Wednesday, for the second-largest gain among 10 subsectors tracked by FactSet. The gain outpaced the 1.1% rise by the S&P 500.

The SPDR S&P Regional Banking exchange-traded fund KRE jumped 3.4% as it regained some of its losses for the year tied to higher interest rates and commercial-real-estate exposure. So far this year, the index of regional banks is down 8.6%, compared with a 13.8% rise by the S&P 500 in 2024.

Among the financial-stock components of the S&P 500, Comerica Inc. (CMA) rose 4.5%, Blackstone Group Inc. (BX) moved up by 4.9%, Citizens Financial Group Inc. (CFG) advanced by 4.8% and T. Rowe Price Group Inc. (TROW) moved up by 4.4%.

Truist Financial Corp. (TFC) rose 3.6%, U.S. Bancorp (USB) moved up by 3.2%, KeyCorp (KEY) added 3. 5% and Fifth Third Bancorp (FITB) advanced by 3%.

Yields on corporate bonds from Fifth Third Bancorp, KeyCorp, Regions Financial and Synovus Financial Corp. (SNV) fell as their prices rose.

As yields in these names fell, bond prices moved up.

Investors poured money into bank bonds amid more bullish sentiment around the sector.

-Steve Gelsi

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06-12-24 1459ET

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