Wall Street’s main indexes jumped on Monday as Bank of America led gains among lenders after reporting better-than-expected results that were underpinned by the Federal Reserve’s rapid rate hikes.
In midday trading, the Dow Jones Industrial Average soared more than 400 points points, or 1.4%, to 30,054, the S&P 500 was up 2.2%, at 3,663 and the Nasdaq was up nearly 3%, at 10,611.
Bank of America benefited from higher net interest income in its third quarter, even though it added $378 million to its loan-loss reserves.
“BAC benefited from a higher interest rate environment in both the yields on the newly issued loans and the growth of the number of depositors,” said Siddharth Singhai, chief investment officer of New York-based investment firm Ironhold Capital.
“This is a direct result of higher interest rates offered by the banks looking very attractive compared to other risk assets. Lending will slow down quite a bit over the upcoming quarters, so a better reserve ratio would buttress them from a huge drop in demand.”
Bank of NY Mellon also benefited from higher rates, sending its shares up 6.1%.
Overall, higher rates boosted interest incomes for lenders in the third quarter but turbulent markets choked off dealmaking and banks set aside more funds to brace for an economic slowdown.
Wall Street is deep in bear market territory, with economic indicators pointing to little signs of decades-high inflation cooling, but some analysts noted that stocks at such depressed levels could pave the way for short-term rallies.
“It’s more just short-term technicals where you’ve got people overextended on the downside,” said Jonathan Waite, fund manager at Frost Investment Advisors.
Traders are pricing in a small chance of a 1% hike by the Fed at its November meeting.
Shares of Goldman Sachs, which will post results on Tuesday, were up 2.7%, following reports of a plan to combine its investment banking and trading businesses.
Major megacap growth stocks like Apple, Meta Platforms, Amazon and Tesla added between 3% and 4% as the yield on US 10-year bonds retreated from multi-year highs.
Tesla, Netflix and Johnson & Johnson are also expected to report results later in the week.
Analysts now expect profit for S&P 500 companies to have risen just 3% from a year ago, much lower than an 11.1% increase expected at the start of July, according to Refinitiv data.
[Written in collaboration with other media outlets with information from the following sources]
