With the Federal Reserve signaling that it may raise interest rates sooner than expected, banking stocks have seen a surge in demand. Banks typically benefit from higher interest rates, which can increase their profits, and investors are closely watching to see how this trend will play out. OptionsSwing Founder Jason Lee leads the discussion on what to expect and where to look for investment opportunities in unpredictable times.
In view of the hyperinflation that has defined so much of the American economy over the last two years, large capital-markets banks like Citigroup, Bank of America, and JPMorgan Chase have been in a protracted recession. "Small to mid-sized banks, however, because the core earnings driver of their income is interest, can still make sequential improvements during these times," Lee explains.
The average consumer has certainly noticed that assets like homes and cars are slowly starting to regain value. This means that banks can expect commercial loan renewals that tend to have relatively short maturity cycles. As dollars migrate into loans and out of cash, the dynamic for investors changes dramatically.
As for those rising interest rates, that is just a trend to watch too, Lee says. "The FOMC can choose to stabilize or change interest rates as the economy swings back up or down. Learning how to create long-term investments first, so that you have a portfolio that is less susceptible to some of these high volatility moments is wise for everyone."
Lee would also like to remove the misconception around traders having to be folks with money to burn. "You can start with $100," he says. "Begin with companies that you already follow, companies that you have an interest in. Keep those shares as long as you can and just keep building. Make your investment budget a regular part of your savings allotment and you will see results no matter the upswings and downturns."
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