Bank Stocks Near Record With Buyback, Dividend Boosts on Horizon

OmariBusiness2025-07-024980

(Bloomberg) -- US bank stocks closed at their highest level in three years as investors continued to pile into the group amid speculation they will begin to boost buybacks and dividends after the lenders comfortably cleared the Federal Reserve’s stress test last week.

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The KBW Bank Index rose 1.5% Tuesday, closing at the highest level since February 2022 and under 4% from its early 2022 all-time high. The gauge posted a ninth consecutive day of gains, matching its longest winning streak on record. All but two of the gauge’s 24 members were higher, led by Western Alliance Bancorp, East West Bancorp Inc. and Zions Bancorp NA.

Tuesday’s rally coincided with a breather for the broader market — which had closed at consecutive records — as investors rotated out of technology shares and into relatively safer pockets of the market. A basket of value stocks outperformed a basket of momentum stocks by nearly 2 percentage points, according to data compiled by Bloomberg.

Banks headed into the week on strong footing after all lenders subjected to the Fed’s annual stress tests passed comfortably, setting the stage for the group to boost buybacks and dividends for shareholders.

The results showed “much better than expected declines in stress capital buffers at all our banks,” JPMorgan Chase & Co. analysts including Vivek Juneja wrote in a note. “Expect the large decrease in capital requirements to likely drive increased share buybacks at all the banks that saw a decrease.”

Meanwhile, analysts at Raymond James anticipate total payouts to “modestly increase,” adding that they “view the stress test results to be a net positive and should garner increasing investor interest in the sector.”

With quarterly earnings ahead, the easing of bank capital rules upcoming, loosening regulations and elevated interest rates at play US banking stocks are primed to keep ripping higher. Hedge funds are also see further room to run, snapping up shares at a furious pace.

It’s the rebound that many investors had been waiting for following President Donald Trump’s November reelection, which many expected to usher in a wave of banking deregulation and pro-business policies. That was before he unleashed a global trade war in April that briefly knocked the industry off course.

The “results of this year’s stress test is more evidence that this period is the most positive regulatory change for banks in 3 decades,” Wells Fargo analyst Mike Mayo wrote in a note. Goldman Sachs was the big test winner, along with JPMorgan, Bank of America and M&T Bank Corp, he said.

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(Updates with closing shares.)