2 Top Bank Stocks to Buy in October
The rising interest rate environment has many investors worried about a recession. Banks are worried too. And yet, higher rates are also a big benefit for banks. How banks manage this economic dichotomy will make a significant difference to their bottom-line profits over the next few quarters.
For investors who focus on the long term, October might be a good time to dig into financially strong banks like Toronto-Dominion Bank (NYSE: TD) and Bank of Montreal (NYSE: BMO). That's because an economic downturn likely won't be as big a headwind for this pair of Canadian giants as you might expect. And the tailwind they will get could be beneficial for investors.
Interest rates were very low for a very long time. That's actually hard on banks because much of their revenue is derived from the difference between the rates they pay to depositors and the rates they charge on their loans. Low rates limit the potential spread between the two. With central banks hiking rates to fight inflation, banks have, for the first time in a long time, the opportunity to charge higher rates on mortgages and other loans. And if they drag their feet on the other side, only slowing increasing deposit rates, they can expand their margins and become more profitable. So banks are generally in favor of rates rising.
Source Fool.com
