More piece of the recovery puzzle are falling into place, and the breakout in financial stocks lately tells the story.
There are really two things going on.
First is the rise in long-term rates. Provided banks can continue to borrow cheaply, which they can, this means more money made on loans.
Here’s the 30-year chart:
Of course, to make money on rising rates they have to be able to lend. And lend they are!
As we’ve pointed out before, the long-trending decline in commercial loans is finally reversing, recently edging back above 0 on a sequential percentage loan growth basis.
And so there’s actually not that much mystery. More lending at higher rates = good times for banks. The economy is revving back up, and the financial industry is playing its part.
Here’s a look at the XLF Financial Sector Spider, which had a huge up day today.: