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Employment data extends the window of opportunity for the banks

Published on July 2, 2026

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Bill Hebel

Brian Herlihy

We just wanted to extend some of our commentary from yesterday’s earnings preview into today’s employment data. Recall that we wrote yesterday about the fact that for lack of a better term, the “hawkish hold” is in our minds positive fundamentally for the banks as we’ve seen the belly of the curve reset higher while funding costs have stayed relatively muted. It’s also been positive from a sector rotation standpoint as the more hawkish stance was interpreted as a negative for some of the sectors who would theoretically be negatively impacted by tighter financials conditions but to the benefit of the regional banks.
Today’s data (wonky though it may be) has had the net effect of pushing a full hike expectation out of Oct. and into Dec. and pushing the belly of the curve down ~4-6bps. We highly doubt that we’ve heard the end of inflation concerns by any means, but as we talked about yesterday, until there are enough datapoints to make a call on the Fed taking action, the “window of opportunity” stays open, and if you follow the forward curve, now has a bit more breathing room – a positive for the banks fundamentally.
That said, given the performance that we have seen since 6/1 (KRE down only 5 of the last 22 trading days prior to today), we’re not surprised to see a bit of a breather today given the move in the curve and the degree of sector rotation (see 1 month chart below). As we mentioned yesterday, our attention is still fixed on monthly core PCE inflation prints needing to come in at 0.21% or below to keep the Fed at bay. Today’s curve move notwithstanding, when you pull back the lens and look at where we were 3 and 6 months ago (chart also below), there’s a very positive story to tell here and one that may have just extended a bit. In sum, we believe the “hawkish hold” theme remains in force and the backdrop intact.

_{Source: Bloomberg}

_{Source: Bloomberg}

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