Yesterday’s surge in interest rates confirmed what you’ve already known about the regional banks… they’re not out of the woods yet.
For the year, the Regional Bank ETF (KRE) has been one of the worst performing sectors, losing almost 10%. That’s not for lack of trying, as the banks put in a nice rally in the end of 2023. But this sector simply needs to do better for the market to move higher.
And right now, the regional banks are fighting a lot of fires. High interest rates eat into their margins. High interest rates keep their loan business down. And remember, there’s $929 billion in commercial loan paper coming due in 2024 that will need to be refinanced at higher rates. That’s more than twice what we saw in 2023.
From a fundamental perspective, the regionals are facing some headwinds, and now the technicals are turning on the group.
Last week, the KRE shares saw a bearish technical pattern form when their 20-day moving average crossed below the 50-day. This pattern indicates that bearish momentum is preparing to drive prices lower.
Last time we saw this pattern, it preceded a 13% drop in the KRE shares back in September. Additionally, interest rates were also climbing at that time.
Bottom Line
We’re approaching a seasonally risky period for the regional banks, as headlines will begin to reflect last year’s meltdown in the sector. As it stands, there are rising fundamental risks in the group, even if interest rates were continuing lower.
A break below the $46 level will confirm the recent bearish momentum shift and target a rapid decline to $37, bringing additional risk to the small-cap Russell 2000 Index.
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About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.
