Regional bank stocks and the exchange traded funds that hold those stocks soared in 2013 as 10-year Treasury yields surged, but that trend has reversed this year with yields tumbling 15.1%.
Tumbling interest rates have punished regional bank ETFs that were bid higher last year on expectations that higher rates were here to stay, a catalyst that was seen as boosting net interest margins for the holdings of funds such as the SPDR S&P Regional Banking ETF (NYSEArca: KRE).
KRE, the largest regional bank ETF has lost 6.4% since its March 20 peak and some technicians see further weakness ahead for the fund.
“A 20-month trendline from November 2012 – the time when the broad market began its current bull run – has been broken to the downside. Last month, the ETF bounced off a longer trendline from October 2011 but with such an unimpressive rebound in terms of technical indicators and relative performance it does not bode well. Savvy chart watchers can already see a possible head-and-shoulders, a pattern marked with two peaks surrounding a higher peak in between,” reports Michael Kahn for Barron’s.
While KRE’s near-term price action must be observed and should not be defied, the ETF still offers opportunity.
An improving U.S. economy could foster increased borrowing and financing by businesses, large and small, across the U.S. while benign mortgage rates could also provide a lift to the mortgage lending operations of regional banks. [Regional Bank ETFs Still Have Potential]