This is the cure for financial stocks, expert says
Interest rate normalization is "not going to mean that much" for sluggish financial stocks, Hennessy Funds' Dave Ellison said Thursday.
But continued improvement in the economy-which would lead to an increase in lending-will provide a more noticeable boost for the sector, said Ellison, a senior vice president at the firm, who manages its large-cap financial fund.
"Rates are going to go up if the economy gets better and that's good for the industry," he said in a CNBC " Power Lunch " interview.
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Big-name financials have struggled to gain momentum this year. Ellison manages the Hennessy Large Cap Financial Investor Fund (NASDAQ: HLFNX-O), which follows key names including JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Bank of America (NYSE: BAC).
The fund has fallen more than 4 percent this year.
When the Federal Reserve decides to increase interest rates, hikes of 25 basis points or less would not provide a significant boon to financials, Ellison said. But the economic improvement that would prompt rate normalization would lead to higher demand for loans, he noted.
"If loan demand picks up that'll drive the stocks," Ellison said.
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He also noted that oil's dive has only a limited effect on big-name financials, as stressed energy companies struggling with loans are relatively isolated.
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