ASX 200 bank shares led a financial sector rebound last week

Stronger-than-expected GDP data rattled the market but bank stocks rose strongly. Here's why.

Financial shares led the 11 ASX 200 market sectors with a 1.97% gain last week.

Meanwhile, the benchmark S&P/ASX 200 Index (ASX: XJO) sank 0.95% to finish at 9,005.9 points.

It's likely that investors buying the dip on bank shares were responsible for last week's sector rebound after a difficult August.

Three of the four major banks were smashed last month after all of them reported significantly lower mortgage applications since May.

That followed the Federal Government announcing changes to capital gains tax (CGT) and negative gearing in the FY27 Budget.

James Gruber, CommSec Equity Market Strategist, said the financial sector was the worst performer of the August earnings season. 

ASX 200 financial shares lost 6.13% of their value over the month.

That performance left investors feeling wary of how the housing market downturn now underway may impact the banks' profitability.

Then last week, the Australian Bureau of Statistics (ABS) released economic news that changed the outlook for the banks.

Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office

Image source: Getty Images

Resilient economy benefits bank stocks

The ABS revealed that gross domestic product (GDP) rose 0.4% in the June quarter and 2.1% over 12 months.

That was stronger than consensus expectations of 0.3% growth in June and 1.8% annual growth, and ahead of the Reserve Bank's forecast of 1.9% annual growth.

The data raised the chances of another interest rate rise as early as next month, and higher rates can be supportive for bank earnings.

If the banks' lending rates stay above deposit rates, which is the norm, then a higher cash rate can boost their net interest margins (NIMs).

A stronger economy can also be positive for banks because it typically means stable employment and resilient household spending.

That means people can keep up their repayments on their home loans and other debts with the banks.

Expectations of another rate hike pushed the 3-year government bond yield to 4.82%, and 10-year yields rose to levels not seen since 2011.

This is why the broader ASX 200 had its worst day in three months on the day the GDP data was released, and why it finished the week in the red.

Higher bond yields aren't great for shares.

When investors can get a pretty high and virtually 'risk-free' return from defensive assets like cash or bonds, they can go 'risk-off'.

That means they are less inclined to invest in shares, which carry a higher risk of capital losses.

Or they might rotate out of growth shares into dividend stocks or blue-chips with reliable earnings (such as the banks!)

This may have also supported ASX 200 bank share prices last week.

As for the rest of the market, 6 of the 11 sectors finished the week in the red.

Let's recap.

Financial shares led the ASX sectors last week

Commonwealth Bank of Australia (ASX: CBA) shares rose 2.02% to $160.42, recovering some of their 9.9% tumble during August.

Westpac Banking Corp (ASX: WBC) shares lifted 3.13% to $34.96, taking back some of their 8.8% decline last month.

National Australia Bank Ltd (ASX: NAB) shares increased 2.51% to $39.25, pulling back some of their 6.5% loss during earning season.

Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares closed 3.32% higher at $37.95.

The ANZ share price fell just 0.3% last month as investors were impressed with the fruits of a continued reset under CEO Nuno Matos.

Macquarie Group Ltd (ASX: MQG) shares lifted 0.04% to $251.87, recovering a little of their 1% decline last month.

Bendigo and Adelaide Bank Ltd (ASX: BEN) shares rose 0.47% to $10.63, taking back some of their 6.4% fall in August.

Bank of Queensland Ltd (ASX: BOQ) shares lifted 3.89% to $6.68, wiping out their 1.66% dip last month.

Among the investment companies and wealth managers, Magellan Financial Group Ltd (ASX: MFG) shares fell 3.43% to $8.74.

Washington H. Soul Pattinson and Co Ltd (ASX: SOL) shares fell 0.25% to $44.22.

Among the financial services providers, AMP Ltd (ASX: AMP) shares jumped 5.08% to $2.48.

Hub24 Ltd (ASX: HUB) shares fell 3.58% to $73.81 and Netwealth Group Ltd (ASX: NWL) dropped 5.03% to $20.37.

Buy now, pay later company Zip Co Ltd (ASX: ZIP) fell 3.94% to $2.44 per share.

Among the ASX 200 insurance shares, Insurance Australia Group Ltd (ASX: IAG) rose 2.55% to $8.05.

The Suncorp Group Ltd (ASX: SUN) share price leapt 5.04% to $19.37.

Financial companies are among 40 ASX shares with ex-dividend dates next week.

ASX 200 market sector snapshot

Here's how the 11 market sectors stacked up last week, according to CommSec data.

Over the five trading days:

S&P/ASX 200 market sectorChange last week
Financials (ASX: XFJ)1.97%
Consumer Staples (ASX: XSJ)0.88%
Communication (ASX: XTJ)0.77%
Healthcare (ASX: XHJ)0.43%
A-REIT (ASX: XPJ)0.02%
Energy (ASX: XEJ)(0.74%)
Utilities (ASX: XUJ)(0.83%)
Industrials (ASX: XNJ)(1.2%)
Consumer Discretionary (ASX: XDJ)(1.79%)
Materials (ASX: XMJ)(4.64%)
Information Technology (ASX: XIJ)(5.21%)

Motley Fool contributor Bronwyn Allen has positions in Magellan Financial Group and Zip Co. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Hub24, Macquarie Group, Netwealth Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank, Netwealth Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Hub24 and Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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