Fed Decision Could Bring Bank Stocks Into Bull Market

Traders waiting for a better moment to get into bank stocks may have gotten one.

What Happened: The U.S. Federal Reserve Board released a statement after markets closed on Friday that clears the way for major banks to restart share repurchases.

The decision was part of the Fed's stress-testing of banks amid the economic uncertainty of the pandemic. The board, seeing healthy capital reserves among the banks, passed the 33 firms it tested while also allowing them to restart limited share repurchasing. Such purchases had been paused earlier in the pandemic.

Why It Matters: Though they have not done poorly, bank stocks haven't benefited as much from the 2020 bull market as other some other industries.

The decision could change this going into the new year, as stock repurchases add support to share prices by boosting demand.

According to Bloomberg, six biggest U.S. banks could buy back as much as $11 billion of shares in the first quarter of next year.

Trading Action: The Fed announcement came at 4:30 EST on Friday. The Financial Select Sector SPDR Fund XLF, which includes major banks JPMorgan Chase & Co. JPM, Bank of America Corp BAC, Citigroup Inc C, Wells Fargo & Co WFC, Goldman Sachs Group Inc GS, and Morgan Stanley MS in its holdings, closed up 3% in afterhours trading from Friday's close of $28.49. 

Photo credit: Joe Mabel, Wikimedia