Published on 25 Mar 2022 on Zacks via Yahoo Finance

Hawkish Remarks From Powell, Others Bode Well for Banks: 3 Picks

The Federal Reserve is ready to take all necessary steps to fight record-high inflation. Earlier this week, at "Policy Options for Sustainable and Inclusive Growth" 38th Annual Economic Policy Conference National Association for Business Economics, Jerome Powell said, “In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”On similar lines, other policymakers are commenting on taking “faster” action to tighten the monetary policy to control the accelerating inflation numbers, which are at a 40-year high now. Some of them are St. Louis Federal Reserve Bank President James Bullard, Richmond Federal Reserve Bank President Tom Barkin, Christopher J. Waller, a member of the Board of Governors of the Federal Reserve System and once dovish Minneapolis Federal Reserve Bank President Neel Kashkari.In this context, bank stocks are the clear winners as they thrive in a rising rate environment. So, we are discussing three bank stocks – Associated Banc-Corp ASB, Citizens Financial Group CFG and Hancock Whitney Corporation HWC – that will gain from higher interest rates.Such aggressive comments following the announcement of the first interest rate hike since 2018 show the central bank’s intention of controlling raging prices at any cost. Amid such hawkish remarks, the CME FedWatch Tool is already showing more than 70% probability of a 50 basis points hike in May, way above the 44% chance of a similar hike a week ago.Though, like others sectors, bank stocks have dipped on broader geopolitical concerns arising out of the ongoing Russia-Ukraine conflict, rising interest rates and business expansion efforts will support their financials. The KBW Bank Index is down 4.7% so far this year, in line with the broader market bearish sentiments.The Zacks Finance sector (of which banks constitute the major part) is currently trading at a price/tangible book value of 4.51X, significantly below the broader market average of 15.82X. Thus, beaten-down stock prices and cheap valuation make a good entry point for investors.

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