Mike Burnick: Stocks posted their biggest losses of the year last week, felled by rising interest rates and concern over the end of the Federal Reserve’s economic stimulus.
The Dow Jones Industrial Average slumped 2.2 percent in what could be the start of an overdue correction after the benchmark gained as much as 21.2 percent this year.
The first cracks in the foundation of the stock-market rally appeared in the housing sector, as I pointed out previously in Money and Markets. The Philadelphia Stock Exchange Housing Sector Index (HGX) was among the best performers in the first half, but since May, it has plunged 15 percent, making it the first victim to rising interest rates, which determine mortgage rates.
Now it appears financial stocks have caught a cold too. Until now, financials (NYSEARCA:XLF) have been top gainers, up 23.8 percent this year, and an engine for the stock market’s rally. A slump in bank stocks could be a red flag for a drop in the broader market.
If you take them at face value, many of the talking heads on CNBC will tell you that rising interest rates are good for financial stocks because higher lending rates enable banks to fatten their profit margins. But don’t fall for such a simplistic argument.
Banks Are Traders, Not Lenders
Back in the good old days when Jimmy Stewart was operating the Bailey Building & Loan, higher interest rates would boost a bank’s income almost immediately from traditional lending, while banks took their time to raise deposit interest rates, resulting in wider net interest margins. But those days are long gone.(...)Click here to continue reading the original ETFDailyNews.com article: Why Big Banks Will Get Crushed From Rising Interest RatesYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
- Are Banks and Housing About to Get Crushed by Rising Rates?
- Rising Interest Rates Mean Trouble for Banks, Insurers
- The Effects of Rising Interest Rates On Preferred Stocks
- Why U.S. Interest Rates Are Rising So Sharply Even Though Inflation Is Non-Existent
- Market Vectors’ Fran Rodilosso on Investment Grade Floating Rate Notes’ Potential to Benefit from Rising Interest Rates
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