Market Commentary

Bank Stocks Jump After Passing Fed’s Stress Test

Huzaifa Waseem
6 Feb 2024 · 2 minutes read

All 23 of the U.S. banks that participated in the Fed’s annual stress test managed to make it through a severe recession scenario, the central bank said on Wednesday.

The 2023 stress test shows that the 23 large banks subject to the test this year have sufficient capital to absorb more than $540 billion in losses and continue lending to households and businesses under stressful conditions,” the central bank said in a press release.

The results of the stress test have signaled that the lending sector remains resilient despite the regional banking crisis that took place earlier this year. As a result, investors now fully expect major banks, such as JPMorgan Chase (JPM:US) and Wells Fargo (WFC:US) to announce updated plans for buybacks and dividends.

Shares of Bank of America (BAC:US), Charles Schwab (SCHW:US), Morgan Stanley (MS:US), JPM, and WFC all rose in early Thursday trading on better-than-expected stress test results.

"Today's results confirm that the banking system remains strong and resilient," Vice Chair for Supervision Michael S. Barr said.

On the other hand, shares of Citizens Financial (CFG:US) slid over 2%, prompting JPMorgan research analysts to downgrade this bank stock after disappointing results.

The stress test results come after Rep. Michael McCaul disclosed last week that he was selling bank stocks in May. The influential Congressman sold shares of Morgan Stanley and Wells Fargo, including the $100,000 - $250,000 sale of the latter’s stock.

On the other hand, his Congress colleague Ro Khanna was actively buying bank stocks in May. Similarly, Senators Mitch McConnell and Tommy Tuberville bought some shares of Wells Fargo and Citizens Financial.