Banks Still Look Profitable After Interest Rates Shift

While the Federal Reserve just started to lower interest rates, new economic data suggests that rates will take their time to decline from here. A strong labor market and potential for inflation ticking higher could keep rates from moving too low, or too quickly.

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  • However, the start of earnings season indicates that isn’t a problem for big banks. While lending may not look attractive when rates are relatively high, the start of the interest rate cut cycle certainly hasn’t hurt.

    The big banks reported last week, with strong earnings and income. A few banks did take a hit as they looked to increase loan loss reserves and take other protective measures.

    That can likely help push the big banks even higher, at least until next quarter’s earnings in early 2025.

    Among the big banks, JPMorgan Chase (JPM) remains the industry leader. Shares are still inexpensive at 13 times forward earnings, and thanks to the bank’s strong 33% profit margin.

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  • Action to take: Investors may like shares of the bank here as a momentum trade going into the end of the year. Shares also pay a 2.4% dividend at current prices.

    For traders, the January 2025 $235 calls, last trading for about $6.40, could see mid-double-digit returns or better from here. Traders will want to take profits before expiration, as the option will expire right around the time the bank next reports earnings.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

  • Special: Every Time the Government Releases Jobs Data... Make This Trade the Night Before!