The banking industry has come under increasing pessimism of late because of rising short and long term interest rates. The banking industry's market capitalization made a substantial decline. Most investors are concerned with whether the industry can sustain continued profitability as a result of these factors.
Interest rates hikes can disrupt profits and cause fundamentals to flounder.
Banks have responded in recent years to these problems by diversifying away from interest sensitive products and services. But interest rates are the fundamental aspect of any financial services. Therefore, we believe the financial services industry will be deeply affected by rising interest rates. Banks have experienced good business factors over the pat two years. Interest rates were low, credit quality was good, and inflation was low.