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Will They or Won’t They? Charting the course for Banks around Macro policy.

Published on September 11, 2026

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Bill Hebel

Brian Herlihy

It’s always striking how quickly a group can move from broad sponsorship to a lack of trend in a relatively short period of time. Unfortunately, we’ve seen that happen to the banks in the last month or so as concerns over tariffs, oil, and the Bessent twist have all weighed on the group. In recent days, we’ve seen oil spike to over $100 again, the ECB raise interest rates yesterday with the indication that more hikes were likely, and today’s core CPI # came in a bit hotter at 0.3% (0.29% unrounded) vs. 0.2%, with Fed Fund futures now pricing in ~90% chance of a hike next week.
From our vantage point, we had temporarily lost the “sweet spot” in bank stocks from earlier in the summer thanks to looser financial conditions via a Fed who now may begrudgingly be likely to take back some or all of the 3 rate cuts at the end of 2025. So if concerns around tighter financial conditions hasn’t helped the banks over the past 3-4 weeks, will a series of rate hikes exacerbate that trend? Not necessarily.
It’s our supposition that the narrative has shifted to one of the Fed needing to regain credibility over inflation to not necessarily kill the expansion but help extend it. In our note last week, we tried to separate out what macro investors key off of when they look at the sector (2-10 spread) vs. bank specialists who tend to focus more on the 3M-5Y spread. The 2-10 has been hovering in the high 30-low 40’s bps range post the twist while the 3M-5Y spread has accelerated rapidly up to ~75-80bps from ~50bps all while the KRE has shed ~5% of its value.
When we look back at the KRE relative to the 3M-5Y spread over the last few years, the correlation is pretty tight both up and down although we’d argue that the KRE tracks the spread moves downward with very little lag, while moves upward in that spread tend to take some time and validation before the KRE broadly follows (see ovals on chart below). In short, it would seem to endorse what investors broadly know intuitively – that it takes more time and validation for investors to buy stocks after a period of uncertainty vs. being quicker to hit the sell button when uncertainty hits. We think more certainty around the path from here may help the group regain it’s footing.

_{Source: Bloomberg}

In addition to the technicals, it’s also important to note that the banks are largely neutral if not slightly asset sensitive in terms of interest rate positioning at this point. We’ve highlighted FITB & EWBC in the past as names that we prefer that lean a bit asset sensitive and should benefit if/when the Fed hikes.
Next week will be chock full of datapoints with a large competitor conference kicking off Monday and continuing through mid-day Wednesday with the Fed decision also mid-day on Wednesday the 16th. In addition to the usual quarterly updates which we believe will continue to be upbeat, we would now expect more detail on sensitivity to future rate hikes as well as expectations on deposit betas especially given that we are not coming off a zero bound in what may be this “mini-cycle” if you will. With deposit pricing already front and center in investor minds, we would expect a dissection of whether or not banks will be as neutral/asset sensitive as their ALCO disclosures would indicate. Our supposition here is that especially if this does turn into a mini 2-3 rate hike cycle, banks will do their best to lag those deposit costs as much as possible. Regardless, today’s data would now seem to remove the recent macro uncertainty and the focus can turn back to the underlying economic data continuing to be positive for banks from a loan growth and credit perspective, as well as the AI buildout continuing to help drive capital markets results. The banks continue to screen well on both capital and capital return and this cash return is something that our Quant team has been highlighting within their work regarding the outperformance of the Cash Return factor which they believe will continue to outperform here.

Current Rating Distribution

Coverage Universe	Percent
Sector Outperform	31.25
Sector Perform	50
Sector Underperform	18.75

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