The Federal Reserve releases its stress test results in two installments over the next week. The first summary results will be released at 4 pm today, and the second data release will be on March 26th.
The financial sector is the best performer among major sectors in the U.S. market today. Investors were rotating into them yesterday afternoon as well, after rates moved higher when the FOMC statement was released. Net interest margins have come down substantially over the past few years as interest rates have remained near 0 for so long. As a result, investors in commercial banks would like to see rates rise over time, which generally increases NIMs (though the correlation is not as high historically as analysts generally claim).
In any case, the small regional bank ETF is breaking out to a new bull market high today on strong volume:[caption id="attachment_37779" align="alignnone" width="600"] KRE daily chart, 50 day ma in pink, 200 day ma in yellow, Courtesy of Bloomberg[/caption]
KRE has not traded at this level since late 2007 (excluding the crazy price action on the short sale day in Sept 2008). That’s quite a turnaround for a sector that was left for dead as recently as October 2011.
KBE is a similar ETF to KRE, except with more of a mid- to large-cap bent. The charts look quite similar, with KBE also breaking out today:[caption id="attachment_37780" align="alignnone" width="600"] KBE daily chart, 50 day ma in pink, 200 day ma in yellow, Courtesy of Bloomberg[/caption]
We’ll be watching both of these ETFs to see whether the breakout in financials holds over the next couple weeks. The rotation into the regional and commercial banks has helped the indices hold their ground as some of the prior leaders have lagged recently. Whether financials can hold their leadership perch likely has implications for the broader indices as well.