The Federal Reserve stated last week that it will continue to pause interest rate increases and that it anticipates implementing interest rate cuts in the coming year. Wall Street has been ecstatic about this, as many stocks were burdened by elevated interest rates during the previous year. The S&P 500 is in a bullish trend, having gained 24% as 2023 comes to a close.
Bank stocks are particularly susceptible to the impact of interest rate trends, and recent reports of stable interest rates, moderated inflation, and a diminished likelihood of a recession have all contributed to a surge in bank stock prices. However, one bank is outperforming the rest, and you may be taken aback to discover which one.
An elite Buffett commodity.
Ally Financial stock has been outperforming its industry competitors (NYSE: ALLY). Ally is owned by 9.6% of Berkshire Hathaway, the holding company of Warren Buffett, despite representing a negligible portion of the Berkshire Hathaway portfolio.
Ally stock increased by 27% over the previous month, outperforming larger institutions such as JPMorgan Chase, Bank of America, Capital One, Wells Fargo, and Citigroup.
For starters, everything is digital. It is capable of providing an intuitive platform at premium rates because it is not required to invest in costly real estate. This straightforward, contemporary strategy appeals to customers who have acquired digital proficiency and derive satisfaction from the convenience and uncomplicated nature of online banking. The largest all-digital bank in the United States is Ally.
Other aspects of Ally’s business, however, are distinct. Its original business, auto-lending, is substantial and continues to be a significant growth driver. Despite the fact that some individuals are discouraged from financing due to the high interest rates, this segment has been performing exceptionally well. With $10.6 billion in originations, Ally nonetheless reported a record 3.7 million auto loan applications for the third quarter of 2023.
As Ally continues to carry older loans with lower interest rates, the bank’s income and net interest margin—the difference between what it earns on loans and other assets and what it pays for deposits—have shrunk somewhat. In the most recent quarter, total deposits increased by $7 billion annually to $153 billion; this is the fourteenth consecutive year of growth.
