Bank stocks rise as investors await election results

Bank shares rose slightly on Tuesday, along with the stock market, as investors shrugged off a potentially drawn-out week of U.S. election results and instead focused on fresh economic data.

The S&P 500 index rose about 1% on Tuesday, with bank stock indexes rising by a similar amount. The slight gain came as voters voted to resolve a key uncertainty for the market: who will be the next US president.

Banking results were in line with the broader market Tuesday, with the KBW Nasdaq banking index up 1%. The index has risen 25% this year as the Federal Reserve began cutting interest rates and fears of a looming recession eased.

Investors “are waking up to the fact that this is not Armageddon,” said Kevin Gordon, chief investment strategist at Charles Schwab, adding that a sharp downturn, when banks “tend to be hit the hardest,” seems unlikely any time soon. Banks reported some deterioration in their loan books last quarter, but their balance sheets overall remain “relatively stable,” Gordon said.

There could be greater upside potential, he added, noting that banks perform well during periods of “sustained expansion” when the Fed takes gradual action rather than cutting interest rates to stave off a recession.

Opinion polls in key swing states showed a tight race between Vice President Kamala Harris and former President Donald Trump. But investors appeared to be encouraged by a separate survey of service firms surveyed by the Institute for Supply Management.

The ISM Services Index, a measure of economic activity in the sector, rose for the fourth month in a row and was at its highest level since July 2022. The index rose to 56% last month, up from 54.9% in September.

“It essentially reassured investors that the economy was still strong,” said Irene Tankel, chief U.S. equity strategist at BCA Research.

The strong ISM report helped assuage any concerns following Friday’s news that U.S. employers added only 12,000 jobs in October. Economists attributed the unusually weak report to hurricane-related disruptions and a Boeing employee strike.

Tuesday’s ISM report was another example of “relatively resilient economic data,” Gordon said.

But short-term volatility could also arise, especially if election results are too close to be announced by the time markets open on Wednesday, Tunkel said.

“The market thinks the economy is fine,” Tunkel said. But “what he wants most is for the uncertainty around the election to be lifted,” she added.