On Friday, comments from key Fed officials heightened prospects of a rate hike in the near-term. The traditionally dovish Eric Rosengren signaled that refraining from hiking rates any longer could harm the economy. Meanwhile, Daniel Tarullo sought further indications of rising inflation but added that he was open to a rate hike this year.
Meanwhile, Fed Governor Lael Brainard is due to speak on policy issues at an event on Monday. Historically known for her dovish approach, it is expected that she may adopt a different stance so as to raise market expectations about a hike. These events indicate that a near-term rate hike is in the offing and it may be a good idea to pick stocks likely to benefit in such an event.
Officials Strike Hawkish Tone
Boston Fed President Eric Rosengren said that the Fed was running the risk of harming the economy if it held off raising rates for too long. Instead, steadily raising rates may be a more appropriate approach. Rosengreen admitted that external economic weaknesses remain a concern. However, he felt the U.S. economy had shown enough resilience in the face of such worries.
Rosengreen felt the central bank runs the chance of overheating the economy if it holds off raising rates any longer. Speaking to CNBC, Federal Reserve Governor Daniel Tarullo said he was looking for further evidence of steady inflation before taking another rate hike into consideration. However, Tarullo refused to rule out a rate hike later this year altogether.
Banks, Insurers to Gain
Rosengren’s hawkish comments led to a broad downturn in stocks on Friday. The S&P 500 lost 2.5% on Friday, suffering its worst decline in two months. However, barring an overall market decline, stocks of banks and insurers are likely to gain going forward and such signs are already evident.
The KBW Nasdaq Bank Index which comprises several large banks, such as Wells Fargo (WFC – Analyst Report) and Bank of America (BAC – Analyst Report) , increased 7% in August while the S&P 500 declined marginally. The index remains in the red year-to-date but several factors may already be working in the favor of stocks from these sectors.
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