Wells Fargo & Co (WFC), Capital One Financial Corp. (COF) & JPMorgan Chase & Co. (JPM): Why You Should Stay Invested in the Financial Sector

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The second reason is that the wealth effect from housing is real. Here is a graph of data from the Federal Reserve that demonstrates how U.S. households and nonprofit organizations have seen real restate wealth and their net worth improve in recent years:

Furthermore, gains in employment and slow-but-steady economic growth are creating a favorable environment for growth in loan demand. If these conditions persist, then the banks should be able to deal with a rising rate environment. Indeed, historically speaking, a rising rate environment means that banks will make more money.

The bottom line

In conclusion, investors should stay positive on the financial services sector as long as the underlying fundamentals are moving in a favorable direction. The debate about the effects of rising rates on the economy will go on and on. There will be tomes of spilled ink discussing the NIM, run-off, Basel III and other esoteric concepts that ordinary investors find hard to grasp.

However, Bernanke has made it clear that tapering the purchases of bonds –therefore lowering interest rates– is contingent upon a stronger economy. Either the Federal Reserve will try to lower rates in the future (given a slowing economy), or the economy will get better (implying more loan demand). In any case, the banks are being supported in their activities and, unless the economy is heading towards another recession, investors should look to hold some banking stocks in their portfolio.

The article Why You Should Stay Invested in the Financial Sector originally appeared on Fool.com and is written by Lee Samaha.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo & Co (NYSE:WFC). The Motley Fool owns shares of JPMorgan Chase & Co. (NYSE:JPM). and Wells Fargo. Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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