What Happened?
A number of stocks fell in the afternoon session after oil-driven inflation pushed markets to price in Federal Reserve rate hikes rather than cuts, a direct threat to the credit cycle that regional lenders depend on.
The 10-year Treasury yield climbed to 4.48%, up from 3.97% before the Iran conflict began, while futures markets moved to fully price in a 25-basis-point rate hike by January and an 80% probability of one by December.
For regional banks, higher-for-longer became higher-than-higher: rising rates lift funding costs on deposits faster than they lift loan yields, squeezing net interest margins. Their commercial real estate loan books, already under stress from elevated vacancy rates, face additional pressure as tighter credit conditions slow refinancing. The Russell 2000, which contains a large concentration of regional bank stocks, fell approximately 0.9%, underperforming the broader market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Regional Banks company Pathward Financial (NASDAQ: CASH) fell 3.5%. Is now the time to buy Pathward Financial? Access our full analysis report here, it’s free.
- Regional Banks company Axos Financial (NYSE: AX) fell 3.2%. Is now the time to buy Axos Financial? Access our full analysis report here, it’s free.
Zooming In On Pathward Financial (CASH)
Pathward Financial’s shares are not very volatile and have only had 3 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 23 days ago when the stock dropped 2.7% on the news that the Fed signaled rate cuts were off the table for 2026.
Major Wall Street banks, including Goldman Sachs and Bank of America, pushed back their forecasts for Federal Reserve interest-rate cuts. The revised timelines, pointed to December 2026 instead of September, after stronger-than-expected jobs and inflation data suggested the economy might not be cooling enough to warrant earlier action from the central bank. This shift in expectations led to a rise in Treasury yields.
Some analysts at Bank of America even noted that the risk of the Fed hiking rates again might be 'underpriced' by the market, signaling a potentially prolonged period of higher interest rates. Banks earn money on the difference between what they charge borrowers and pay depositors, the net interest margin. Rate cuts are a mixed signal: they compress margins but stimulate loan demand. With the Fed signaling no cuts, banks lose the demand catalyst needed to grow lending volume.
Pathward Financial is up 9.2% since the beginning of the year, but at $78.50 per share, it is still trading 21.5% below its 52-week high of $99.93 from April 2026. Investors who bought $1,000 worth of Pathward Financial’s shares 5 years ago would now be looking at an investment worth $1,477.
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