Bank Stocks Enjoy a 7% Boost This Month, Surpassing Nasdaq and S&P 500

• Bank stocks are up 7% since the start of October.
• They have outperformed the Nasdaq and the S&P 500.
• The top bank stocks have also beaten most of the Magnificent Seven stocks.

After a stream of strong earnings reports to start the third quarter, bank stocks are some of the hottest on the market.

It might surprise some investors that boring old bank stocks are anything but right now. Bank stocks are among the hottest on the market, outperforming much more attractive technology and AI stocks since the end of September.

Since the start of October, bank stocks have jumped a startling 7% as measured by the , which tracks the performance of the 24 largest bank stocks.

The KBW Nasdaq Bank Index went from 114.5 at the close of the market on September 30, to 122.5 at the closing bell on October 18 — a return of 7%.

Smaller banks, as measured by the KBW Nasdaq Regional Banking Index have also performed well, returning 5% since the market closed on September 30.

Better Than S&P 500 and Nasdaq

Banks have outpaced both the and since the end of September, as the S&P 500 has gained just 1.7% since the market closed on September 30, while the Nasdaq has returned just 1.6%. Further, the , which is considered a barometer for tech stocks and excludes financial stocks, has only recorded a 1.3% return since then.

There are a couple of reasons that bank stocks, in general, are surging. The most obvious is that they are the first to report earnings every quarter – and they have largely reported better-than-expected results that have beat estimates.

Those results have been fueled by a few different things, starting with a stronger-than-anticipated economy. Banks are bellwethers for the economy, as they thrive when consumers and businesses are borrowing and spending. In addition, when the economy is strong, credit quality improves and that means banks have to set aside less funding in provisions for credit losses.

What has also helped banks is that interest rates came down for the first time in more than four years in September, with more cuts expected over the next few years.

Lower rates should start to unleash pent-up demand for businesses and consumers to start borrowing and investing again.

The final broad catalyst is the relatively low valuations of banks. Bank stocks got beaten down last year during the banking crisis, so their valuations sunk to dirt-cheap levels. This year, as banks have slowly recovered, investors have piled back into bank stocks at extremely low valuations. It has largely paid off as the KBW Nasdaq Bank Index is up 29% year-to-date, better than both the Nasdaq, up 22% YTD and the S&P 500, up 23% YTD.

Wells Fargo, JPMorgan Chase, and BNY Mellon Lead the Way

The top-performing bank stock over the past month has been Wells Fargo (NYSE:) by quite a wide margin. The nation’s third largest bank has seen its stock price jump 14.3% over the past month as of October 21, as it easily beat earnings estimates. Wells Fargo stock is now up an impressive 56% YTD.

JPMorgan Chase (NYSE:) has also had a strong month, fueled by excellent third quarter earnings that were driven by its investment banking business. JPMorgan Chase stock has gained 6.4% over the past month and 55% YTD.

Similarly, Bank of America has been a top performer, up nearly 5% over the past month and 56% YTD. However, the best performer in the industry has been BNY Mellon (NYSE:), a custody bank for large institutions. BNY Mellon stock is up 6% this month and 80% YTD.

These returns may not rival some technology AI stocks, like NVIDIA (NASDAQ:), Taiwan Semiconductor (NYSE:), and Arm Holdings (NASDAQ:), all of which have triple-digit returns, but they beat most of the Magnificent Seven stocks.

Only Meta (NASDAQ:), up 61% YTD, has comparable returns to these top bank stocks. Apple (NASDAQ:), Microsoft (NASDAQ:), Alphabet (NASDAQ:), Amazon (NASDAQ:), and Tesla (NASDAQ:) all have lower YTD returns.

Can bank stocks continue to outperform? Investors will have to evaluate them on a case-by-case basis, but there are several things to like about bank stocks in general. They are still relatively cheap, in relation to the Nasdaq or S&P 500 averages, and they are coming into a lower interest rate environment, which could spark more lending and lower deposit costs.

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