Global banking firm J.P. Morgan has reached new highs despite the Federal Reserve cutting interest rates, which could put the banking sector in a bind as lower rates could affect their lending businesses. Nonetheless, J.P. Morgan is up 9% within the last few months and exchange-traded funds (ETFs) with the heaviest weightings of the bank should be on investors’ radars.
Analysts like Miller Tabak’s equity strategist Matt Maley said that as bond prices climb, banking stocks could come under pressure. Investors have been piling in on bonds the last few months as a go-to safe haven shift, which has caused Treasury yields to fall and bond prices to climb.
“Every time the Treasury market gets overbought and starts to pull back — in other words, as prices come down, interest rates go up — the bank stocks start to rally. … We saw that back in April, we saw it in July and then of course we saw it just in the last two weeks. The problem is that each of the previous two cases, the bond market bottomed out and rallied back again, and I think we’re going to see that again,” Maley said Wednesday on CNBC’s “Trading Nation.”
One ETF to watch is the SPDR S&P Bank ETF (NYSEArca: KBE), which is up 19.14% YTD based on Yahoo Finance performance numbers.
“The KBE bank ETF has not made a new high. The same thing in Bank of America, it’s made a lower high, it’s starting to roll over a little bit, but J.P. Morgan has made a higher high. So if I’m wrong, and the banks start to run, that’s the one that leads the pack. And if I’m right, and the banks pull back a little bit, J.P. Morgan looks the best on the charts and it should look good going forward,” said Maley.
ETFs with Heaviest JP Morgan Exposure
- Financial Select Sector SPDR Fund (NYSEArca: XLF): seeks investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in the Financial Select Sector Index. The fund generally invests substantially all, but at least 95%, of its total assets in the securities comprising the index. The index includes securities of companies from the following industries: diversified financial services; insurance; banks; capital markets; mortgage real estate investment trusts (“REITs”); consumer finance; and thrifts and mortgage finance.
- iShares U.S. Financial Services ETF Financials Equities (NYSEArca: IYG): seeks to track the investment results of the Dow Jones U.S. Financial Services Index composed of U.S. equities in the financial services sector. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index measures the performance of the financial services sector of the U.S. equity market.
- Vanguard Financials Index Fund ETF Shares (NYSEArca: VFH): seeks to track the performance of a benchmark index. The fund employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index (IMI)/Financials 25/50, an index made up of stocks of large, mid-size, and small U.S. companies within the financials sector, as classified under the Global Industry Classification Standard (GICS). The Advisor attempts to replicate the target index by seeking to invest all, or substantially all, of its assets in the stocks that make up the index, in order to hold each stock in approximately the same proportion as its weighting in the index.
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