First, it’s important to notice that the price ratio has been trending lower really since early January despite an otherwise bullish market earlier in the year. One might argue that the credit downgrade by S&P of U.S. sovereign debt might explain the drop since regional banks surely hold a substantial portion of their assets in government debt, however as any chart of Treasuries will show, yields actually went down. Bond prices and yields move in opposite directions.
Whatever the reasoning is, Mr. Market has decided to focus its attention on regional banks independent of actual fundamental exposure. Who says markets are logical?
Disclosure: The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The article does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.