A growing number of traders and analysts have begun to anticipate that the first FOMC rate hike of a new tightening cycle could happen as soon as next month. Conventional wisdom says that rising interest rates are good for banks’ net interest margins, but do rising interest rates produce rising share prices for banks stocks?

In Theory

A large part of banks’ profits comes from the spread between the interest they collect from long-term loans and the interest they pay on short-term debt. While a rise in interest rates across the board doesn’t necessarily improve this spread, it theoretically gives banks more wiggle room when it comes to their net interest margins (NIM), which have been declining steadily in recent years.

What Does History Tell Us?

The last FOMC tightening cycle occurred…

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