U.S. stock indexes were set to rise on Monday as Bank of America led gains among lenders after better-than-expected results that were underpinned by the Federal Reserve’s rapid rate hikes.
Bank of America Corp rose 2.8% in premarket trading as the lender benefited from higher net interest income in its third quarter, even though it added $378 million to its loan-loss reserves.
“BAC benefited from a higher interest rate environment in both the yields on the newly issued loans and just the growth of the number of depositors,” said Siddharth Singhai, chief investment officer of New York-based investment firm Ironhold Capital.
“This is a direct result of higher interest rates offered by the banks looking very attractive compared to other risk assets. Lending will slow down quite a bit over the upcoming quarters, so a better reserve ratio would buttress them from a huge drop in demand.”
Bank of NY Mellon Corp also benefited from higher rates, sending its shares up 4.7%.
Overall, higher rates boosted interest incomes for lenders in the third quarter but turbulent markets choked off dealmaking and banks set aside more funds to brace for an economic slowdown.
Shares of Goldman Sachs, which will post results on Tuesday, were up 1.5%, following reports of a plan to combine its investment banking and trading businesses.
Major megacap growth stocks like Apple Inc, Meta Platforms Inc, Amazon.com and Tesla Inc added over 1% each as the yield on U.S. 10-year bonds retreated from multi-year highs.
Tesla Inc, Netflix and Johnson & Johnson are also expected to report results later in the week.
Analysts now expect profit for S&P 500 companies to have risen just 3.6% from a year ago, much lower than an 11.1% increase expected at the start of July, according to Refinitiv data.
At 8:33 a.m. ET, Dow e-minis were up 311 points, or 1.05%, S&P 500 e-minis were up 47 points, or 1.31%, and Nasdaq 100 e-minis were up 177.5 points, or 1.65%.
The S&P 500 and the Nasdaq marked their fourth weekly loss in five on Friday, after data showed little signs that inflation was cooling, prompting traders to start pricing in the possibility of a 1% hike by the Federal Reserve at its November rate-setting meeting.
Fox News parent Fox Corp slipped 5.6% after Rupert Murdoch started a process that could reunite his media empire, News Corp and Fox disclosed on Friday, a decade after the companies split. Shares of News Corp gained 5.4%. (Reporting by Ankika Biswas and Shreyashi Sanyal in Bengaluru; Additional reporting by Bansari Mayur Kamdar; Editing by Anil D’Silva, Arun Koyyur and Saumyadeb Chakrabarty)