What happened to Westpac shares?
Shares of Westpac Banking Corp Ltd [ASX:WBC] gained more than 1.2% today as investors bought the Aussie market following a strong rebound in US stocks overnight.
Why did Trump’s comments send the WBC share price up?
US president Donald Trump said that he plans to push ahead with big tax cuts for the US economy. As a result, the US market gained 0.58%, and the Dow Jones Industrial Average closed at a new record high.
If the US cuts business and personal tax rates, it would likely act as a stimulus to the economy — at least in the short term. Any increased spending power by US consumers and businesses, could in turn result in greater demand for goods (produced in China), which could result in greater demand for natural resources (sourced from Australia).
The impact on Aussie banks is that increased cash flowing into the Aussie economy could likewise provide a temporary boost to the economy. That could be favourable to the banking sector.
Of course, the story over the long term may not be so positive, especially when you look at the consequences of the last borrowing and spending boom, leading up to 2008.
What now for Westpac Banking Corp?
Bank stocks, including Westpac, performed poorly from early 2015 through to mid-2016. But since then, they’ve rebounded strongly, as investors have once again sought big yields in a low interest rate environment.
Of course, with Australia’s GDP number due out at the end of this month, anything below expectations, could cause investors to worry that a recession is near…even if the economy avoids it this time.