Many major bank stocks are trading near record highs and in some cases near buy points, as the Fed ponders an interest-rate cut that's likely to influence rate-sensitive financials.
The Federal Reserve is meeting to decide whether to resume cutting interest rates. The Fed started loosening monetary policy a year ago, but so far hasn't changed the target Fed funds rate at all this year.
Fed Chair Jerome Powell believes tariffs imposed this year threaten to revive inflation, and he's been reluctant to cut rates. At a speech in August, however, Powell signaled risks to the labor market could justify additional cuts.
The Fed will announce its decision at 2 p.m. Wednesday. This month's policy meeting includes the quarterly Summary of Economic Projections, in which Fed members estimate future interest rates. The "dot-plot" acts as a forecast of future Fed actions.
Interest rates — and the gap between short- and long-term yields — influence banks and other financial institutions. The difference between interest paid on deposits and interest received from loans is the net interest margin that's so important for banks, especially regional banks.
Money-center banks also have brokerage fees, investment banking and other businesses to support their incomes. Interest rates also influence broader economic activity, which also affects banks.
Bank Stocks Near Buy Points
Two of the largest U.S. banks are near buy points.
Wells Fargo is forming a cup-with-handle base with an 83.20 buy point. The relative strength line, however, is lagging. Wells Fargo has an IBD Composite Rating of 84.
Bank of America broke out of a flat base Aug. 22 and remains in the buy zone from a 49.30 entry. The buy range goes to 51.77. BofA stock tested the entry last week and found support. Its RS line is near highs. Its Composite Rating is 81.
Other major U.S. bank stocks are extended, but a few foreign banks trading in the U.S. are actionable.
Royal Bank of Canada surged 5.5% on Aug. 27 after the bank gave a bullish earnings report. The stock stalled after that, but has been trading tightly. The chart now shows a three-weeks-tight pattern with a 147.64 buy point. The RS line is near highs also.
The chart of Swiss bank UBS Group also shows tight action. Shares are now just above the 40.92 entry of a four-weeks-tight pattern.
Other Banks Near Buy Points
UK-based Natwest Group is trading near the 14.55 buy point of a flat base the stock cleared on Aug. 12. Shares fell nearly 7% from the buy point two weeks ago, but have rebounded and avoided a sell signal.
In South America, Banco Santander-Chile broke out at a 25.53 buy point and remains in buy range to 26.80. Brazil-based Itau Unibanco is in buy range from a 6.95 flat-base buy point. The RS line for both stocks is lagging, however.
Japan-based Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group appear to be forming flat bases. Mitsubishi's potential buy point is 16.16, and Sumitomo's is 17.46.
Barclays, Bank of New York Mellon, HSBC, Goldman Sachs and Citigroup are at or near multiyear highs after finding support at their 10-week moving averages. Those stocks are now extended.
Deutsche Bank is trading near the highest level since April 2014. The stock is up 26% from a breakout at 29.07 in late June.
JPMorgan, Other Banks Extended
Back to U.S. banks, JPMorgan Chase, the nation's largest bank, is at record highs after shares found support at the 10-week moving average the past several weeks. The relative strength line is near new highs also, although the stock is extended from its most recent entry.
Morgan Stanley also is at all-time highs, extended after multiple pullbacks to its 10-week moving average. The stock is up 24% from its most recent breakout (from a double-bottom base) in May.
Another positive for money-center bank stocks is their lower volatility.
All 26 have a 21-day average true range (ATR) of 2% or lower. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
