U.S. Bank Stocks Soared in August. Can the Rally Continue for These 2 Companies?

Key Points

• The prospect of rate cuts has clearly bolstered the banking sector.

• Rate cuts tend to stimulate the economy, reducing the potential of a recession.

• They may also steepen the yield curve, which is when banks typically perform best.

• 10 stocks we like better than American Express ›

Since the Great Recession, bank stocks have woefully underperformed the broader benchmark S&P 500 index. But in August, banks caught a bid as the market began to price in a higher likelihood of an interest rate cut at the Federal Reserve's upcoming September meeting.

Lower rates could stimulate the economy and boost lending, help maintain strong credit quality, and steepen the yield curve, especially when you consider what's going on at the long end of the curve with the yield on the 30-year U.S. Treasury bond elevated. Banks tend to thrive under a steeper curve because the traditional bank model involves borrowing money at lower, shorter-term rates and lending it out at higher, long-term yields.

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In August, the SPDR S&P Regional Banking ETF generated an 11.4% return, far superior to the S&P 500's 3.7% gain. Two banks that performed particularly well are the consumer lenders SoFi Technologies (NASDAQ: SOFI) and American Express (NYSE: AXP). Can they keep the rally going?

Image source: Getty Images.

America Express: The gold standard of credit card lending

Shares of American Express ripped over 12% higher in August. For those who don't regularly follow AmEx, the company runs two main businesses. The first is the traditional credit card lending business, in which it extends credit to consumers, most of whom have prime and super prime FICO scores. AmEx customers tend to have more disposable wealth and owning an AmEx card seems to carry a certain status, which partly explains why the company can charge as much as a $695 annual subscription fee for its Platinum card.

AmEx also runs a payments business, which is what makes it different from most other credit card lenders. The company serves as the merchant acquirer and assists businesses in processing transactions from AmEx card holders, collecting fees for each transaction it processes. There aren't that many large-scale payment networks bigger than AmEx, other than Visa and Mastercard.

AmEx continues to generate strong earnings, and credit quality has held up nicely so far. Make no mistake, AmEx is the top credit card stock to own due to its strong brand and revenue diversity. Currently, the stock trades at 21.5 forward earnings, toward the top end of where it has traded over the past five years. The shares are likely to be range-bound in the near term. If interest rates come down and the economy avoids a recession, the stock will continue to rise.

However, even AmEx's customers could struggle if there is a recession, which becomes more likely the longer interest rates stay elevated. So the stock certainly could be vulnerable to pullbacks in the near term if monetary policy and the macro environment don't shake out as expected. However, long-term-minded investors can certainly buy the stock.

SoFi: Having a monster year

Digital bank SoFi Technologies had an even stronger quarter than AmEx, surging over 20% in August. The company wants to be a one-stop shop for investors and provides bank accounts, personal loans, mortgages, an investment brokerage, personal finance tools, and much more. SoFi also has a bank technology business that provides core processing technology for banks and fintechs, as well as payment processing capabilities for firms that want to add a payments component to their business.

The stock has been a beast for investors, up nearly 80% this year. SoFi is also now profitable, having generated $0.14 diluted earnings per share through the first half of 2025, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) just shy of $460 million, up 63% year over year, and revenue of over $1.6 billion, up over 30% year over year.

Most of the company's revenue is still being driven by the lending business, the majority of which comes from personal lending. Similar to credit card lending, this business is cyclical but would likely benefit from lower interest rates. This makes the cost of borrowing cheaper over time and leads to more robust capital markets, which is important because SoFi sells the bulk of its loans.

While the growth is impressive, SoFi trades at the monster valuation of over 80 times forward earnings and 5.9 times its tangible book value, or its net worth. This, in my opinion, leaves the company vulnerable if the economy falls into a recession or loan funding from the capital markets dries up.

Additionally, because SoFi sells most of its loans and does not hold them to maturity on its balance sheet, the company must mark its loan book to fair value each quarter, which is based on a number of factors including loan loss rates and prepayment speeds. SoFi's marks are typically positive, which positively impacts earnings. The discount rate used in SoFi's fair value marks of its personal loan portfolio still seems a bit optimistic, in my view.

For all of these reasons mentioned above, I am staying away from the stock right now.

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American Express is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool has a disclosure policy.