By any measure, including their own third quarter financial reports, big U.S. banks are signaling the economy is on solid ground. And shares of these big banks jumped on Tuesday, suggesting investors are starting to believe them.
The nation’s four biggest lenders and its two major investment banks posted mostly better than expected results, citing an increase in revenue from advising companies on deals, lending to consumers and businesses, and managing investor money. Bank executives point to a good environment, in which consumers are spending and companies are investing.
Goldman Sachs CFO Martin Chavez said Tuesday, “We remain cautiously optimistic, given active client dialogues, healthy economic growth and resilient investor sentiment.”
Bank stocks reacted positively on Tuesday, led by Morgan Stanley, up nearly 6 percent, with Goldman up 3 percent and Bank of America and J. P. Morgan up over 2 percent.
Yet, this has not been the case for most of the year as the market has singularly focused on rising interest rates.
The fear played out last week, when major stock indexes erased 4 percent before a solid rebound Friday and Tuesday. Many bank stock investors seem to be asking whether and when rising rates will choke off economic activity, and bank profits along with it.
“Bank stocks are acting as though there’s a recession around the corner,” said Michael Mayo, a bank stock analyst at Wells Fargo & Co. of the longer term trend. “Bank fundamentals say anything but.”
Goldman shares are down 14 percent year to date and Morgan Stanley’s are down 13 percent, though both got a boost Tuesday after beating expectations for the third quarter. J, P. Morgan Chase shares are up just 1 percent this year, while fellow lending giant Bank of America is down 4 percent and Citigroup is down more than 6 percent. Wells Fargo shares are down 11 percent.
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