Stocks

The Bank Stocks Aren’t Fine – Part 2

I posted about the Banks one week ago,

The Bank Stocks Aren’t Fine

The US Fed held the target for the benchmark rate steady at 2.25% to 2.50%. Fed Powell indicated no rate hikes 2019.  With rates potentially at their peak for this cycle and future GDP projections declining slashed, this recipe could spell trouble for the bank stocks.

Typically, financial entities like banks, insurance companies, brokerage firm generally benefit from higher interest rates. Increases in interest rates, mean the economy is doing good. Banks make loans to borrowers at a higher rate than non-performing assets such as savings accounts and CDs and profit from the difference. However, in an environment in which the yield curve is flattening, Banks’ margins are adversely affected.

Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector. But if interest rates are no longer going up and potentially going down in the future, that’s going to put pressure on the bank stocks. The other bank ETF that I monitor is the SPDR S&P Regional Banking ETF, KRE. KRE, the largest regional bank ETF by assets. The top holdings are the following:

Source

Historically KRE has been positively correlated to rising Treasury and the Financial Select Sector SPDR® Fund, XLF. So lets go to the charts to see where KRE is heading next.

Monthly Chart (Curve Timeframe) – monthly supply is at $63 and monthly demand is at $42.

Weekly Chart (Trend Timeframe) – the trend sideways.

Daily Chart (Entry Timeframe) – if you have a short bias due to the macro environment, the chart suggests to short price at the daily demand at $58.50.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

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