According to JPMorgan analysts, the recent 50 basis point rate cut by the Federal Reserve represents an "inflection point" for regional bank stocks.
After a period of rate hikes that pressured the banking sector, particularly regional banks, the rate cut signals a turning point where several headwinds could now become tailwinds for the sector.
JPMorgan says that from March 2022 to July 2023, the Fed raised rates by 525 basis points, creating challenges for regional banks.
These challenges included rising deposit costs, slow loan growth, and concerns over credit quality, particularly in the commercial real estate (CRE) market.
However, with the Fed's rate cut and more reductions expected, JPMorgan sees these pressures easing.
"With short-term rates falling, the yield curve has also de-inverted," the analysts note, adding that this presents a path toward improving net interest margins (NIMs) and earnings for regional banks.
JPMorgan points to specific banks that could benefit from the Fed's rate cuts, including Live Oak Bancshares (NYSE:LOB), which could see a reduction in funding costs due to its high exposure to market-rate online deposits.
Western Alliance Bancorporation (NYSE:WAL) is also highlighted for its potential to lower deposit costs. On the loan side, analysts expect banks like Metropolitan Bank Holding Corp (NYSE:MCB), Frost, and Pinnacle to lead loan growth, while Huntington Bancshares (NASDAQ:HBAN) and M&T Bank Corp. (NYSE:MTB) are seen benefiting from a resurgence in commercial and industrial (C&I) loan demand.
JPMorgan believes the rate cuts will also ease credit concerns, particularly for banks with CRE exposure. They conclude that this shift opens the door for a sector-wide revaluation, with regional banks poised for significant gains as headwinds become tailwinds.