Treasury yields loom large ahead of bank earnings season
XLF•The S&P 500 banks index fell about 7.5% in September, its biggest monthly drop since March, as a bond market selloff weighed on bank stocks. UBS analyst Erika Najarian said investors will focus on how longer-term rates affect business momentum.
1. Banks fell in September
The S&P 500 banks index declined about 7.5% in September, compared with a 0.5% drop in the S&P 500. The bank index rose 0.5% on Monday after a September jobs report Najarian characterized as “Goldilocks.”
2. Rates and bank outlooks
Najarian said that once the 10-year Treasury yield reaches about 5%, rising yields tend to weigh on market multiples. She said investors need reassurance about the capital-markets pipeline, loan growth and deposit costs. The US 10-year yield rose to about 5.34%.
3. Citigroup and Morgan Stanley
Najarian said Citigroup has reflected the most disappointment since the prior earnings season, and that reiterating its path to higher profitability could provide a near-term boost. For Morgan Stanley, she said her third-quarter expectations are below consensus, but cited continued equity strength, mega IPOs in the pipeline and follow-through in its Wealth business as potential supports.
