Inflation cools and trading revenues boom — ride the bank earnings momentum
Inflation just fell for the first time in years, meaningfully taking the pressure off the Federal Reserve to raise interest rates. At the exact same time, major banks like Goldman Sachs are crushing their earnings expectations due to a massive boom in market trading.
Idea
Cooling inflation completely changes the backdrop for bank stocks, which had been weighed down by fears of aggressive Federal Reserve rate hikes that could choke off the economy. With those hike bets fading fast, the macroeconomic risk hanging over the financial sector is vanishing. Layered on top of this favorable shift is Goldman Sachs blowing past its profit targets thanks to a record-breaking surge in trading activity. This creates a powerful combination for a trade: a massive fundamental earnings catalyst reinforced by a suddenly supportive interest rate environment.