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Banks & / or insurers as rates rise?

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Banks & / or insurers as rates rise?

James, Interest rates are hiked, bank stocks go down. Why the sudden reaction when the market was already expecting higher rates by year end & 2023? Were the banks in a no win situation . . . 1. Rates go up, share price goes down due to concerns over lending and future defaults? 2. Rates stay lower, margins are still compressed? I would have thought that an increase in rates would have benefitted banks somewhat, as well as insurers; however, they don't seem to have at all this week. What's your opinion, is it a good time to exit the banks? Thanks, Bernie

Answer

Hi Bernie,

Your reasoning is solid but sentiment is the elephant in the room short-term especially as the 2 sectors have outperformed through 2022. UBS’s logic was simple and made sense i.e. while interest rate hikes do help margins, after the strength since late 2021 the sector had become expensive not adequately pricing in the risks of elevated bad debts.

MM would prefer to selectively accumulate the banks into current weakness as opposed to panic sell.

 

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