What Happened?

A number of stocks jumped in the afternoon session after comments from a key Federal Reserve official boosted hopes for an interest rate cut. New York Federal Reserve President John Williams stated he sees “room for a further adjustment” in the near term, sparking a significant market rally. Following his remarks, the probability of the central bank cutting rates at its December meeting jumped from 39% to over 73%, according to the CME FedWatch tool. This positive sentiment provided relief to markets amid concerns over high valuations, particularly in AI-related stocks.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Regional Banks company East West Bank (NASDAQ: EWBC) jumped 4.1%. Is now the time to buy East West Bank? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company Columbia Banking System (NASDAQ: COLB) jumped 4.1%. Is now the time to buy Columbia Banking System? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company Cathay General Bancorp (NASDAQ: CATY) jumped 4.1%. Is now the time to buy Cathay General Bancorp? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company BankUnited (NYSE: BKU) jumped 4%. Is now the time to buy BankUnited? Access our full analysis report here, it’s free for active Edge members.
• Regional Banks company Axos Financial (NYSE: AX) jumped 4.1%. Is now the time to buy Axos Financial? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Cathay General Bancorp (CATY)

Cathay General Bancorp’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was about 1 month ago when the stock dropped 6.2% on the news that disclosures from two lenders raised concerns about deteriorating loan quality across the industry. The drop was triggered by specific incidents that have spooked investors. Zions Bancorp announced a $50 million charge-off—a debt the bank doesn't expect to collect—on a single loan. Separately, Western Alliance Bancorp revealed it was dealing with a borrower who had failed to provide proper collateral. These events are compounding existing anxieties about the regional banking sector, which is already under pressure from elevated interest rates and declining commercial real estate values. The news heightened investor concerns that more cracks could appear in borrowers' creditworthiness, potentially leading to increased loan losses and reduced profitability for other banks in the sector.

Cathay General Bancorp is up 1.5% since the beginning of the year, but at $47.81 per share, it is still trading 11.2% below its 52-week high of $53.85 from November 2024. Investors who bought $1,000 worth of Cathay General Bancorp’s shares 5 years ago would now be looking at an investment worth $1,637.

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