The Federal Reserve's signal this week that rates are likely to come down in the coming months sent a positive jolt through a sector rattled by market uncertainty this year: banks.
The KBW Bank Index soared 9% over two days on the heels of the Wednesday afternoon meeting, its best such rally in nearly three years. That helped lift the index to its highest level since March 8, just before the collapse of Silicon Valley Bank.
The prospect of rate cuts eases worries over unrealized losses in banks' securities portfolios, deposit competition and the overall health of the economy.
The rally has left bank stocks "no longer at no-brainer valuation levels," according to Baird analyst David George. "We aren't inclined to chase the strength here," he added.
The sector rallied in recent weeks as yields on 10-year Treasuries retreated.
The recent advance has flipped the script on the sector's performance for 2023, lifting stocks like Fifth Third Bancorp and Western Alliance Bancorp into the green.
The rally has also boosted gains for JPMorgan Chase & Co. and Wells Fargo & Co., with both closing Thursday at their highest levels since early 2022.
The KBW Bank Index slipped on Friday, following commentary from the Fed's Bank of New York President John Williams that talk of a March cut is "premature." The gauge finished the week up 8.1%.
Bank stocks came under pressure earlier this year with Silvergate Capital Corp. saying it would wind down its bank, Silicon Valley Bank tumbling into receivership and Signature Bank failing.
