The annual meeting of central bankers in Jackson Hole will give Federal Reserve chair Janet Yellen a chance to bounce ideas off her international counterparts as well as get a feel for what they have planned for the coming year. While every meeting of the FOMC has the market waiting with bated breath, there could be an even greater chance for a change of tone this week.
“The meeting has previously marked major turning points in Fed monetary policy, and the market will be focused on uncovering clues as to the timing of the first Fed funds rate increase or deviations to QE tapering. Overall, the market appears to be preparing for a dovish Yellen speech,” write Sterne Agee analysts Kenneth James, Terry McEvoy.
Bank asset sensitivity rankings
So they’ve taken the opportunity to update their rankings of US banks with the highest and lowest asset sensitivity for investors who want to position themselves for a surprise one way or the other.
In his book, The Dhandho Investor: The Low–Risk Value Method to High Returns, Mohnish Pabrai coined an investment approach known as "Heads I win; Tails I don't lose much." Q3 2021 hedge fund letters, conferences and more The principle behind this approach was relatively simple. Pabrai explained that he was only looking for securities with Read More
A hawkish tone favors bank asset sensitivity
It would be really surprising if Yellen announced a new piece of actual policy following the meeting, and no one is really expecting that to happen, but if she simply comes across as more hawkish than the market expects it will be good for banks with more asset sensitivity such as short-dated assets and a loan-heavy asset mix.
Sterne Agee specifically mentions Buy-rated stock Comerica Incorporated (NYSE:CMA), PrivateBancorp Inc (NASDAQ:PVTB), The PNC Financial Services Group (NYSE:PNC), Fifth Third Bancorp (NASDAQ:FITB), and East West Bancorp Inc (NASDAQ:EWBC) as likely to benefit if we get a hawkish post-Jackson Hole speech from Yellen.
Bank asset sensitivity: A dovish Fed stance is mostly priced in
A dovish Yellen is basically the status quo, especially after recent Congressional testimony once again focused on the importance of improving the labor market. Since Yellen doesn’t think inflation will be a problem anytime soon, it makes sense that she is focused on the other half of her dual mandate.
But if Yellen does somehow come out even more dovish after the meeting then it would have exactly the opposite effect, benefiting banks with long-dated assets and less liquidity. Sterne Agee mentions Washington Federal Inc. (NASDAQ:WAFD), Umpqua Holdings Corp (NASDAQ:UMPQ), EverBank Financial Corp (NYSE:EVER), and TFS Financial Corp (NASDAQ:TFSL) as Buy-rated banks that are on the low end of asset sensitivity would benefit from a more dovish Fed stance.