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JPMorgan, Goldman Hit All-Time Highs as Dovish Fed Juices Bank Profits

A dovish Fed, a flush consumer, millions in SPAC fees and the hottest growth forecasts in 40 years have investors betting on big bank profits this quarter.

U.S. bank stocks extended gains Thursday, with JPMorgan  (JPM) , Morgan Stanley  (MS)  and Goldman Sachs  (GS)  rising to fresh all-time highs, as investors re-set earnings expectations for the country's biggest lenders following the Fed's bullish update on growth. 

The Fed's decision to hold its benchmark lending rate unchanged, effectively anchoring short-term bonds yields at near record lows, while indicting a tolerance for inflation that has lifted longer-term yields to multi-year highs, gives banks some of the best financial conditions under which they operate in at least five years.

The Fed's tolerance for faster inflation -- which could accelerate to 2.2% this year as the base-effects from higher oil and commodity prices factor into CPI readings throughout the spring and summer months -- lifted benchmark 10-year Treasury yields a January 2020 high of 1.75% in early Thursday trading.

The move puts the yield gap between 2-year and 10-year notes at around 1.6%, the steepest since 2015, and a normally unambiguous indication of near-term economic bullishness. 

With consumer balance sheets improving on the back of stimulus checks from President Joe Biden's American Rescue Plan, which includes enhanced unemployment benefits that last until September, default rates are likely to fall sharply over the coming months. JPMorgan, in fact, has already released $2.9 billion in previous credit loss provisions, adding 72 cents to its fourth quarter bottom line.

Furthermore, banks are pocketing millions in fees from the so-called SPAC boom, a surge in so-called 'blank check' acquisition companies that have several advantages over traditional IPOs. Around $150 billion have been issued so far this year, more than double the tally for the whole of last year. 

Add in the Fed's pledge to keep buying $140 billion in bonds each month as part of its ongoing quantitative easing program, its 'dot plot' forecast for no rate hikes until the end of 2023 and a post-pandemic boom that could trigger a 6.5% GDP growth rate this year -- the fastest since 1984 -- and you have a potent cocktail of earnings potential for the nation's biggest lenders.

JPMorgan shares were marked 3.8% higher in mid-day trading Thursday to change hands at $161.00 each, just shy of the all-time high of 161.20 reached earlier in the session.

Goldman Sachs shares were also on the move, rising 2.75% to $354.55 each after hitting their own historic peak of $356.75 each in mid-morning trading. 

Citigroup  (C)  rose 2.6% to $75.50 each, Morgan Stanley was marked 2.8% higher at $86.27 each, just off its record high of $86.35 and Wells Fargo  (WFC)  bumped 3.5% higher to $41.25 each.