Local investors will be looking for a solid start to ASX trading today after a 24 point jump on Friday night as Wall Street put together another solid week.
Friday saw the Dow jump 391.16 points, or 1.15% to close at 34,283.10, the S&P 500 climb 1.56% to end the week at 4,415.24 and the tech heavy Nasdaq regained some of its poise with a 2.05% jump to end at 13,798.11 for its best single day’s trading since May.
Tech stocks stood out for their best day for weeks. Microsoft leapt to all-time highs during the session and ended the day higher by 2.5%. Apple, Meta, Tesla and Netflix jumped more than 2% each, while Alphabet gained 1.8%. Chip maker Nvidia was yp around 3%
Friday’s surge lifted the three major averages for a second consecutive week of gains.
The S&P 500 advanced 1.3%, while the Dow added about 0.7%. The Nasdaq was the outperformer, rising roughly 2.4% on the week.
One feature of Wall Street’s recent trading has been the way bank shares have been discounted by investors.
US bank stocks are at an all-time low compared with the S&P 500 based on relative prices, according to data from BofA Global Research.
That has made their valuations attractive to some investors: the sector trades at eight times forward earnings, less than half of the 19.7 valuation of the S&P 500.
But some analysts are cautious, worried there could be a head fake or ‘value trap’ in financials if the US economy slides into recession next year.
Bank share have been spurned by investors since April-May when the US regional bank crisis erupted and although the Fed controlled it, not too many analysts think the problem has gone away.
In Australia, the ANZ completes the reporting for the big four banks today (and the CBA has its September quarter update on Wednesday).
One key factor for bank stocks in the US and Australia is whether the Federal Reserve – and the Reserve Bank here – are close to wrapping up a monetary tightening cycle that has brought the highest US interest rates in decades.
The RBA certainly isn’t after its rate rise last week
Higher rates allow lenders to charge customers higher interest and with central banks heading down a higher for longer track, banks could be looking at better interest margins for a bit longer than the market thinks.
But they also increase the allure of short-term bonds and other yield-generating investments over savings accounts, while hurting demand for mortgages and consumer lending which is happening now.
Bond yields have dropped from around 5% for the key 10 year Treasury security which is a small sign pressures might be easing which would in turn to a bull point for US banks.