Is the bank move real this time?
I think it is, and not just because they correlate with better-than-expected employment numbers.
It's real because the money has no place left to exploit. Right now, the banks are so far behind the market, you can find quality companies that have sat out almost the entire run.
What I like about today's rally in the banks is that it seems to be taking into account something other than just net interest margin (NIM).
For ages, since the Fed had decided to keep rates to a minimum, investors had focused on how much banks were making on their deposits, and pretty much nothing else. Except, perhaps, government investigations.
This time, though, the rally seems to be centered on which banks actually have growth, or at least have the best growth prospects, if employment keeps rising.
This brings me to SunTrust Banks (STI). We've liked SunTrust for ages now, for the charitable trust. The simple reason is that STI does have among the best growth prospects for any bank, because it is in the southeast, and that area's been growing much faster than most other areas of the country.
However, that has meant absolutely nothing until, well, this week. It's almost as if people suddenly flicked a switch and decided, you know what, growth matters now, not net interest margin. If that's the case, who has the best growth? Well, it's SunTrust!
Given how closely correlated the banks are, I don't want anyone outthinking this: the group is making its move. That means the high-quality growers like Wells Fargo (WFC) and U.S. Bancorp (USB), the two natural money magnets, will stay strong.
But before the obsession over NIM took over, you did tend to buy the banks that had the most robust geographies. And if that is the case, let me just say, on Suntrust's behalf, it does dominate lending in an area that has really begun to accelerate. Oh, and if you think you missed this once high-quality, high-octane growth juggernaut, it did trade at $90 before the Great Recession.
No, I don't expect STI to revisit that level any time soon, but it wouldn't be a stretch to think that it could see half of that in the not-too-distant future.