Rising Rates Help Banking Sector Lift U.S. Equity Markets

Bank shares are being driven higher by a jump in the U.S. Treasury note yield to 3.09 percent, its highest level since May. Higher rates tend to increase a bank’s profitability. Among the winners in the banking sector, J.P. Morgan Chase. It’s the best performing stock in the Dow.
James Hyerczyk
Stock Chart Up
Stock Chart Up

The major U.S. stock indexes are trading mixed across the board with the Dow leading the charge to the upside and the NASDAQ Composite struggling with a small loss. Stocks in the Dow and the S&P 500 Index are being led by a jump in bank shares in response to rising interest rates. Sentiment is up in the overall market, however, as investors increased bets on a favorable outcome in the trade dispute between the United States and China.

At 1644 GMT, the benchmark S&P 500 Index is trading 2909.01, up 4.70 or +0.16%. The blue chip Dow Jones Industrial Average is at 26446.94, up 199.98 or +0.76% and the technology based NASDAQ Composite is trading 7934.51, up 21.60 or +0.27%.

Bank shares are being driven higher by a jump in the U.S. Treasury note yield to 3.09 percent, its highest level since May. Higher rates tend to increase a bank’s profitability. Among the winners in the banking sector, J.P. Morgan Chase. It’s the best performing stock in the Dow.

The S&P 500 Index is being supported by the Financials sector which is up more than 1.5 percent. Individually, Goldman Sachs and Bank of America are up more than 2 percent, while Morgan Stanley gained 1.8 percent. Citigroup rose 2.5 percent.

In other stock market related news, Tesla shares fell 0.6 percent after the company said the Justice Department last month requested documents regarding CEO Elon Musk’s tweets in early August about taking the company private.

U.S.-China Trade Relations

On Wednesday, Chinese Premier Li Keqiang said China was facing “greater difficulties” in keeping its economy stable. He also said:  “Deeply integrated into the world economy, the Chinese economy is inevitably affected by notable changes in the global economic and trade context.” Li added, however, the Chinese have “sufficient tools” to manage these difficulties.

The comments suggest that China is digging in to resist the aggressive attempts by the Trump administration to force it to make concessions on trade. Although the headlines read on Tuesday that the trade dispute was escalating, the rally in the U.S. stock market suggests otherwise.

Trump knows the U.S. is operating from a position of strength because the economy is strong, earnings are healthy and confidence among consumers and investors remains high. Furthermore, more people are working and spending money.

Nonetheless, Robert Pavlik, chief investment strategist at SlateStone Wealth still senses an air of caution. He said on Wednesday, “Trade tariffs will remain a major concern not only to corporations but to market participants and especially to those professional investors who have never experienced a trade war outside of what they learned in college.”

Pot Stocks and Main Stream Investing

There’s a trend developing whereby mainstream companies are or thinking about partnering with cannabis producers. Earlier in the week, Aurora Cannabis rallied nearly 45 percent in Canadian trading after Canadian news service BNN Bloomberg reported Coca-Cola is in talks with Aurora to develop wee-infused beverages.

Now comes word that the world’s largest pharmaceutical companies are starting to think about partnering with cannabis producers as a “hedge” against the space.

“Cannabis is a substitute for prescription painkillers, prescription opioids, and so if you’re an investor in a pharmaceutical company or you’re a pharmaceutical company, you have to hedge the offset from cannabis substitution,” CEO of Tilray Brendan Kennedy said on Tuesday.

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