Will Bank Rates Take a Cue from Corporate Earnings?
July 12, 2010
You may be a conservative depositor who doesn't have much to do with the ups and downs of the stock market. Or, you may consider your bank deposits totally separate from your high risk/high return stock investments. Either way, you probably don't make an immediate connection between what's going on in the stock market and what you expect from bank rates. Still, as corporate earnings are announced in the days ahead, keep in mind that bank depositors do have an indirect stake in these results.
No, savings account rates, money market rates, and CD rates won't get an immediate jump-start if the stock market rallies on positive corporate earnings announcements. Still, good news from the corporate sector might be the best hope right now to send bank rates higher in the second half of this year. This is based on the premise that an improving economy would boost interest rates.
You see, there are three elements to the domestic economy -- government spending, consumer spending, and business spending. The government has used about as much ammunition for fiscal stimulus as it can find, and now a ballooning deficit will start to rein in its spending. Consumers are plagued by lingering high debt levels and a weak job market. In contrast, corporate profits have recovered powerfully over the past year.
Ultimately, corporations won't invest much unless they see the consumer coming around. However, strong profits at least create the potential for a rise in business investment. If some of that investment results in hiring, it may just be the spark to get consumers -- and ultimately bank rates -- up off the mat.
