The biggest 12 losers from the Fed's move
Federal Reserve Board Chairwoman Janet Yellen arrives at a news conference following a Federal Open Market Committee meeting September 17, 2015 in Washington, DC.(Photo: Win McNamee, Getty Images)
There's no mystery about who lost by the Fed's decision to leave rates untouched: banks and brokers.
Investors speculating banks would enjoy fatter profits from higher rates have been sorely disappointed by the Federal Reserve's decision to do nothing. There are a dozen stocks in the Standard & Poor's 500, including broker Charles Schwab (SCHW), broker E-Trade (ETFC) and bank Comerica (CMA), that dropped 1.5% or more immediately following the Fed's move to leave short-term interest rates untouched.
The beatdown of bank stocks — amid a stable broader market that's relieved by the news — highlights that while most investors figured the Fed would do nothing speculators had shifted into bank stocks on the long-shot that it did actually hike rates.
Charles Schwab and E-Trade's stock hits are logical given these brokers make a surprisingly large amount of income by sitting on investors' uninvested cash — or float. Investors who have money in their accounts that isn't invested are essentially giving free loans to Schwab and E-Trade — which can put the cash in risk-free overnight funds. Higher rates would have made this float even more lucrative.
The hit on bank stocks make sense, too, as speculators hoped higher rates would drive up loan rates — good for bank incomes — while deposit rates were likely to remain low as demand for capital is weak. That fatter "spread" would have meant more profit for the banks.
But bank speculators thinking they could make a quick buck, learned again, you can't fight the Fed.
BIGGEST LOSERS IN S&P 500 STOCKS FOLLOWING FED ANNOUNCEMENT
Charles Schwab, SCHW, -3.4%
E-Trade, ETFC, -2.3%
Comerica, CMA, -1.9%
Bank of America, BAC, -1.9%
Fifth Third, FITB, -1.7%
Hudson City, HCBK, -1.6%
Northern Trust, NTRS, -1.6%
SunTrust, STI, -1.5%
LIncoln National, LNC, -1.5%
KeyCorp, KEY, -1.5%
Bank of New York Mellon, BK, -1.5%
Regions Financial, RF, -1.5%
* Based on stock changes from 5 minutes before announcement
Source: S&P Capital IQ, USA TODAY
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