If Donald Trump has made bank stocks great again, Janet Yellen has just made them even greater.
US financial stocks were on a tear on Thursday, extending their strong post-election market gains after the Federal Reserve raised interest rates on Wednesday and signalled that at least three more rises are on the cards for next year.
The prospect that the US central bank might have to raise rates at a faster than expected pace sent the S&P 500 financial sector 1.6 per cent higher.
The rise takes the sector’s gains since November 8 to more than 19 per cent and puts the gauge at its highest level in nine years.
The rally in financials was led by the 2 per cent rise in bank shares.
Lenders are seen as key beneficiaries of higher interest rates since they profit on the difference in the rates they charge on loans and their own funding costs.
“As long as inflation expectations are increasing and market-based US rate hike estimates are increasing, financials should continue to lead equity returns,” said Dennis DeBusschere, head of portfolio strategy at Evercore ISI.
“If rising global inflation leads to questions over the commitment by the European Central Bank and Bank of Japan to keep long rates low, financials should benefit as well.”
On the other end of the spectrum, real estate stocks were under pressure as the rising rates dimmed some of the appeal of the consistent dividend streams that they offer.
Elsewhere, Eli Lilly shares were in demand after the drugmaker predicted its sales and profits would be higher than expected next year.
The stock rose 4.4 per cent to $70.60, helping the shares bounce back from a recent spat of setbacks, including news that its Alzheimer’s drug, Solanezumab, had failed late-stage trials.
The drugmaker forecast that revenues in 2017 would be between $21.8bn and $22.3bn, versus the $21.7bn that Wall Street analysts were typically expecting.
Mondelez was the day’s biggest gainer, rising by the most in over two years following a report that Kraft was considering a takeover bid for the company.
Although the report was denied by Kraft, Mondelez shares still gained nearly 7 per cent to $45.77.
In the wider market, the Dow Jones Industrial Average resumed its march towards the 20,000 mark.
The index bounced back from Wednesday’s sell-off to climb 0.7 per cent to 19,925.65.
The S&P 500 was up 0.6 per cent at 2,267.62 while the Nasdaq Composite gained 0.7 per cent to 5,472.43.