BAC

Banking stocks appear to be the main beneficiaries of the U.S. Nonfarm Payrolls for June. Being usually released on each first Friday of the month, it was announced a day early due to the U.S. long weekend ahead of celebrating the Independence Day on July 4.

The report showed 147,000 new jobs added in June versus the consensus expectation of 139,000 and 111,000 jobs a month ago (now revised to 144,000). The set of data also included average hourly earnings surplus of 0.2% only MoM against the expected growth of 0.4%. The annual pace came out at 3.7% against the previous 3.9% and 3.8 estimated by Wall Street analyst pool. This marks another important milestone for the U.S. Federal Reserve (Fed) on the path to possibly considering interest rate cuts sooner than later. Good for the economy, and even better for stocks, especially banks!

Given an unprecedented pressure on Fed's chair Jerome Powell and his colleagues from Donald Trump to reduce the burden of the national debt as quickly as possible, with interest rates on the national debt being tied in one way or another to the Fed's borrowing rates, of course, this Nonfarm payrolls release would be a good precedent that Powell's team could use to adequately justify the need to act, as hourly earnings trend may point to cooling inflation.

However, everyone can see something of their own in the release, and, therefore, the next steps of currency fluctuations look controversial. The best tactic in the currency market seems to be not to catch the next price movement today, but to try to ride the reverse pullback after the long weekend, relying on the 1.1700-1.1925 wider trading range for EURUSD, as an example. Since it is unlikely that the single European currency will climb beyond these limits on such mixed data.

This piece of news is excellent for Wall Street. Many stocks will continue to grow in the second half of the year, and I bet tech, retail and banking segments will do even better in the July-to-September quarter. That's why I still have a truckload of effective investment ideas as well as better expectations on my existing stock portfolio.

Another driver is the Big, Beatiful Bill’s essence. In the United States, on July 1, the Senate finally adopted a major bill with tax cuts for businesses, as well as an acceptable way to resolve the issue of the U.S. public debt ceiling for a decade ahead. The chances are also increasing for the Federal Reserve to reduce interest rates in September plus December. I would not rule out even such behind-the-scenes preliminary agreements that the increase the national debt by nearly 4 or 5 trillion Dollars by the bypartisan Congress could be a mandatory condition so that the Fed would, in principle, begin to reduce interest rates.

Anyway, the potential settlement of bond yields' curve after the bill's adoption may generate a more steady demand for U.S. public debt which, in turn, could lift bond prices. That's good for banks as each of the huge financial institutions is holding hundreds of billions Dollars in US bonds. And they have had a negative impact on banking balances. When the Fed's interest rates remain too high and the bond price curve does not rise, bonds cannot be sold with a profit before the expiration date, tying up a lot of available banking funds and reducing profit for banks.

It's worth noting that some giant banks like JPMorgan (JPM) have already hit multi-month historical highs, outpacing the rest. But every big bank is going to benefit eventually, and so the laggards like The Bank of America (BAC), which is also growing fast right now, are my best buys.

Based on this, I would buy Bank of America shares with targets of at least $57.5, given that they are currently trading just above $48, so there is room for at least 15% growth above that, which is quite a pleasure to have in the super-reliable banking sector. Other big banks are already in my portfolio for a long time, including JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC) - all of them rose by 9.5% to 11% on bill hopes and additionally gained after the Federal Reserve’s annual "stress test" on June 30 provided optimistic signs, potentially leading to the banks increasing the excess capital they plan to distribute to shareholders via dividends or stock buybacks. Well, even in case of any possible future slowdown in business activity in the U.S., which the Fed will certainly not be able to prevent, I don’t mean a recession or anything like the Great Depression, simply a moderate decline in activity, many borrowers will once again run to banks for loans to keep their small and medium businesses safe and family budgets afloat. Good for the banking segment once again!