Bank Shares Book Big Gains As US Averts Fiscal Cliff… For Now

by Trefis Team
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On New Year’s Day, the Congress went ahead and passed into law the stop-gap agreement between the Democrats and the Republicans, to address the issue of taxes that demanded immediate attention to avoid the fiscal cliff situation. Investors cheered the decision as it now provides room for concrete steps to be taken towards solving other contentious issues, including drastic defense and domestic spending cuts. The relief among investors was all too evident from the overall increase in the value of stocks across sectors, over trading on Wednesday.

Bank stocks extended the rally, which has continued quite uninterrupted since mid-November, with Capital One (NYSE:COF) topping the list with a 5.7% jump in its share value. Shares of BNY Mellon (NYSE:BK) and Citigroup (NYSE:C) added more than 4% to their value, followed by an at least 3% hike in share prices for Bank of America (NYSE:BAC), U.S. Bancorp (NYSE:USB) and Goldman Sachs (NYSE:GS). The KBW Bank Index was up 3.2% over the day.

See our full analysis for Capital OneBNY MellonCitigroupGoldman SachsBank of AmericaU.S. Bancorp

The Reds and the Blues have been haggling for months on measures that need to be taken to limit the impact of the U.S. economy from expiration of various tax cuts, combined with automatic restrictions on government spending – a scenario being referred to as the fiscal cliff. The two sides finally came to terms on one aspect of higher income taxes on individuals. Although this agreement took some time coming, and there are some other tough decisions to be made about issues like raising the debt ceiling and finalizing the U.S. domestic and military spending budgets, the fact that there is progress at all on the matter was enough to raise investors’ hope.

The agreement, and its subsequent adoption as law has improved the overall economic outlook for 2013, helping share prices book notable gains for companies from all industries.

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