Regional Bank ETFs Look for Upside

The financial services sector, the second-largest sector weight in the S&P 500, has been a laggard this year. That disappointment includes regional banks stocks and exchange traded funds such as the SPDR S&P Regional Banking ETF (NYSEArca: KRE), the largest regional bank ETF.

KRE and rival regional bank ETFs were banking on higher interest rates to boost their fortunes. 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. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.

Unfortunately for some that are bullish on the financial service sector, with the Fed looking dovish even after its recent rate hike, politics might be the lone remaining catalyst for the sector for a while and that could weigh on regional banks that were hoping for a more hawkish Fed.

KRE “is comprised of 100 holdings from across the U.S. and trades with a reasonable gross expense ratio of 0.35%. Taking a look at the chart, you can see that the surge in upward momentum that resulted from the presidential election has stalled out and the price is now drifting back toward the long-term support of its 200-day moving average. In technical analysis, the 200-day moving average is regarded as one of the strongest levels of support, so most traders will likely look to open a long position as close to $48.22 as possible,” according to Investopedia.