Bank stocks keep climbing as data, oil price surge boosts rates

Bank stocks surged again Wednesday, putting the sector on track for the best month in years, as upbeat economic data and a spike higher in crude-oil prices helped trigger a big jump longer-term interest rates.

The SPDR Financial Select Sector exchange-traded fund XLF, +1.26%  rallied 1.2% in afternoon trade toward the highest close since May 2008, or before the Lehman Bros. collapse triggered the financial crisis. The sector ETF has rocketed $2.73, or 14%, so far this month, which would mark the biggest one-month percentage gain since October 2011 and the biggest price jump since March 2000.

In comparison, the S&P 500 index SPX, -0.27%  has gained 3.5% in November.

Among the XLF’s heavyweights, shares of Bank of America Corp. BAC, +4.48%  surged 4.3%, and were on course for their first close above $21 since Nov. 5, 2008. The stock has run up 28% this month, and 35% since the end of the second quarter.

Don’t miss: Bank of America’s stock rally is far from over, analysts say.

See also: Bank of America’ stock is still well below the first Fibonacci retracement.

Kudos to David Tepper, the billionaire investor who became famous on Wall Street for making billions on bank stocks in 2009. His hedge fund, Appaloosa L.P., reinvested in B. of A. with a new 4.1 million-share stake in Bank of America during the third quarter, after selling off a previous 7.0 million-share stake during the second quarter.

David Tepper in 2014.

Regulatory filings don’t show what price Tepper paid for his B. of A. shares. But if his stake remains the same, he’s made $22.4 million on his investment since Sept. 30. Using the volume-weighted average price of the stock during the third quarter of $14.88, he’d be up $25.6 million.

Among other sector heavyweights, J.P. Morgan Chase & Co. shares JPM, +1.58%  gained 1.4%, Citigroup Inc.’s stock C, +1.57%  rose 1.5%, Goldman Sachs Group Inc. shares GS, +3.56%  jumped 3.7%, shares of Wells Fargo & Co. WFC, +2.04%  advanced 2.1% and Morgan Stanley’s stock MS, +1.92%  tacked on 2.1%.

Analyst Matt O’Connor at Deutsche Bank was the latest analyst to boost his outlook for the banking sector, writing in a note to clients Wednesday that the sector seemed to have priced in higher interest rates, but not yet a stronger economy.

O’Connor upgraded Goldman Sachs to buy from hold and raised his stock price target to $255 from $188. He also raised his targets on Bank of America by 31% to $23, on J.P. Morgan Chase by 23% to $90, on Citigroup by 24% to $61, on Wells Fargo by 22% and on Morgan Stanley by 26% to $43.

On Wednesday, data on private sector job growth, personal income and Chicago-area manufacturing activity were all better than expected, offsetting slight disappointments in consumer spending and pending home sales. See MarketWatch’s Economic Calendar.

That, and the inflation implications of Wednesday’s big jump in crude-oil prices CLF7, +8.16% in the wake of production cuts, helped push the yield on the 10-year Treasury note TMUBMUSD10Y, +3.96%  up 0.070 percentage points to 2.372%, which matched Friday’s 16-month high. See Bond Report.

OPEC Cuts Daily Production by 1.2 Million Barrels

(5:56)

OPEC agreed to cut its output by approximately 1% in an effort to lift sagging prices. WSJ’s Sarah Kent and Tanya Rivero discuss the behind-the-scene deal making and whether OPEC’s agreement is expected to last. Photo: Getty Images

Banks can profit from rising longer-term interest rates, as they increase banks earn by funding longer-term loans with shorter-term borrowings.

O’Connor said the sector should also benefit from President-elect Donald Trump’s plan to cut regulations and tax rates, which could lead to a “meaningful pickup” in dividends and share buybacks.

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