What Is The Investors’ Reaction To Reports And Analysts Expectation of Rate Hike in December?


What Is The Investors’ Reaction To Reports And Analysts Expectation of Rate Hike in December?

There are reports that the job data released earlier in the day suggested that the decks are cleared for a rate hike in December when the FOMC meets on 13 and 14. However, does this sentiment reflect in the banking stocks such as JPMorgan Chase & Co. (NYSE:JPM) or Citigroup Inc (NYSE:C) or Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC). These are considered as the four big banks by different analysts.

Despite reports and analysts clamoring for a rate hike, these four stocks are trading in the red on Friday after the job data was released by the labor statistics.

In a research note to clients, Wells Fargo said, “The unemployment rate declined to 4.6 percent as the labor force participation rate once again slid. On balance, these results remain within the FOMC’s range for full employment and indicate the labor market continues to tighten. The U-6 unemployment rate, a focus of Presidentelect Donald Trump, declined to 9.3 percent, marking a new cycle low.”

The brokerage termed that though wage growth in November was soft, real wages were up on a year-over-year basis. In an aging business cycle, Wells Fargo thinks that increasing labor costs for a small gain would lead to increased unit labor costs and would put pressure on profit. That meant that either the companies would accept the lower margin or would prefer to pass the increased costs to consumers by hiking prices.

This combination could result in inflation rising as the economy reached its full employment. Therefore, analysts expect FOMC to hike interest rates when they meet later in the month. Reports also suggested that the Central Bank would prefer to give a pause to interest rate hike at least until the first half of next year if they increase the interest rates in December.

However, it seems that investors’ are not keen to take any cue from the latest reports on job data to expect a rate hike. This could be seen from the following banking stocks price movement:

  • JPMorgan shed 0.72 percent to $81.20.
  • Citigroup lost 1.85 percent to $56.21.
  • Bank of America dropped 1.74 percent to $21.12.
  • Wells Fargo fell 1.33 percent to $53.62.