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On Wednesday, Federal Reserve Chair Jerome Powell hinted that the U.S. central bank would cut rates during its July FOMC meeting.
In testimony before the U.S. House Financial Services Committee, Powell said the central bank would take "appropriate" actions to sustain economic expansion and suggested a "muted" outlook for inflation in the months ahead.
Following the statement, banking stocks retreated as concerns about lending revenue weighed on the broader industry. U.S. Treasury yields also fell sharply, with the 10-year bond dropping to 2.06%.
Additionally, ongoing macroeconomic concerns tied to trade complement existing worries about the European banking sector. Earlier this week, Deutsche Bank (NYSE: DB) began laying off 18,000 employees (about 20% of its workforce) with plans to depart the global equities business.
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Despite these headwinds, the banking sector looks very healthy. Also, banks provide a critical service in virtually any type of market: access to capital.
As earnings season approaches, look beyond the big names like Bank of America Corp. (NYSE: BAC), Goldman Sachs Group Inc. (NYSE: GS), and Morgan Stanley (NYSE: MS).
Instead, search for smaller, regional banks that have less exposure to global contagion and stronger dividends than their "too big to fail" competition.
At Money Morning, the best way we know to tap into profitable regional banking stocks that are about to take off is with our proprietary Money Morning Stock VQScore™.
This ranking system tracks 1,500 of the profitable companies in the world and assigns each a score from 1 to 4.
The higher the ranking, the more likely the stock is poised to shoot to the moon.
Here are the three best regional bank stocks to buy before earnings season.