Bank Stocks Get an All-Clear Signal

Bank stocks enjoyed a strong rally over the past week. The first and obvious catalyst was the increasing likelihood that the Federal Reserve is going to raise the fed funds rate earlier than expected in 2015. The market was looking for a raise later in 2015, or even in early 2016. Fed chief Janet Yellen gave an indication that a rate rise could happen earlier (probably as early as the end of the first quarter of 2015 or the beginning of next year's second quarter).

A fed funds rate increase would be beneficial to the banking sector, because a major part of banks' short-term liquidity is tied up in non-interest-bearing federal securities. These banks are earning nothing on these deposits -- in many cases it actually costs them money to hold these deposits. In addition, a rise in short-term interest rates means that the economy is getting better, and that should mean higher loan balances and fees for the industry....519 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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