One of the main drivers of the business cycle (and therefore some stocks) is the direction of credit and liquidity. In this sense, these two areas of the United States economy are driven mainly by where interest rates are. They are set to go next, so today’s setup for the Federal Reserve is one of the most important in this current cycle, as it is already creating very high expectations among investors.
With this in mind, investors can start examining the first areas of any economy that benefit from lower interest rates before most others, and that is the financial sector. Banking stocks, from the regional smaller ones up to the big investment banks, could see a decent earnings per share (EPS) expansion in the coming months and quarters, driven by this potential lower interest rate environment.
