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Quarter-End Insights

Financials: What Will Really Drive Interest Rates?

Investors' attentions are often focused on Fed actions, missing the larger picture.

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  • The financial services sector appears close to fairly valued, trading at just a 3% discount to our fair value estimates.
  • Investors' attentions are often focused on Fed actions, missing the larger picture.
  • We think the underlying factors producing low interest rates--advances in technology, demographic trends, and the state of the global leverage cycle--will result in a gradual normalization rather than a quick return to historical norms.
  • We prefer companies in greater control of their own destiny--such as  Citigroup (C) and  Wells Fargo (WFC)--to those that depend on rate hikes to boost earnings.

Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.