Is the Bank ETF Sell-Off a Cause for Concern?

January 26th at 5:43pm by Tom Lydon

The financial sector has been a top-performing sector in 2012 after last year’s debacle, but an unexpected drop in new U.S. home sales prompted a round of profit taking in bank stocks and related exchange traded funds.

SPDR S&P Bank ETF (NYSEArca: KBE) was down 2.5% Thursday and is falling back down to its 200-day simple moving average after only recently crossing over. KBE fell below the trend line back in June 2011. The fund is still up 9.5% year-to-date and has surged 30% since the most recent October 3 market low.

Financial stocks, along with the rest of the equities market, have been rising on the risk-on environment, as positive economic data helped support the markets.  [Worst to First: Financial, Materials ETFs Lead Market]

Bank of America (NYSE: BAC) announced that it earned $2 billion in the fourth quarter, reversing loses and ending the year up $1.4 billion, according to the Associated Press.

Other large bankers, like Citigroup (NYSE: C), Wells Fargo (NYSE: WFC) and J.P. Morgan Chase (NYSE: JPM), have also announced stronger loan-growth numbers in the fourth quarter, according to the Wall Street Journal.

However, on Thursday, the government revealed that new U.S. Home sales dropped 2.2% in December, whereas economist expected of a modest increase, which underscored the Fed’s view that the housing market is holding back U.S. growth. New home sales ended 2011 down 6.2%, a record low of 302,000, according to MarketWatch.

The disappointing report on new home sales halted the rally in financials, but investors remain optimistic in light of the Fed’s decision to maintain low interest rates until late 2014, reports Richard Leong for Reuters.

“All in all, it does seem like a little bit of profit-taking on the weak housing data, but we’ve had a good run and maybe it’s simply time for a little bit of consolidation,” Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research, said. “We don’t think it’s a major peak, just a little bit of a break here.”

Looking ahead, the financial sector will have to wait on the outcome of Greece’s plans to negotiate with private investors to avoid a default that could bring the Eurozone’s financial sector back into crisis mode.

SPDR S&P Bank ETF

For more information on banks, visit our financial category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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