Why Are Financial institution Inventory ETFs Climbing So Excessive?


Confirmation of the intensity of the rally in bank stocks that Invesco KBW Bank ETF (NASDAQ: KBWB) has been almost 34% higher since early 2021.

Such performance for little more than four months can be enough to scare away some late-arriving investors, leading them to think that the upward movement of bank stocks is limited from here. On the contrary, some market watchers see many reasons bank stocks, including KBWB components, are at the start of their rallies.

See also: Top 50 Financials ETFs

“But bull stocks are about more than avoiding last year’s troubles. Banks were already in a strong position on the way to an economic slowdown, ”reports Carleton English for Barron’s. “While near zero interest rates didn’t help, banks have been able to rely on increased trading and advisory business to support stocks. And even if the economy recovers, investment banking activity is expected to remain robust. Not to mention, banks are expected to be aided by a surge in credit growth in the second half of the year and the expected resumption of normal stock buybacks and dividends. “

The tailwind balance is only growing

A number of impending and medium-term catalysts speak for the KBWB’s chances of building on the impressive run that has been running since the beginning of the year.

“Credit growth should improve in the second half of the year, with Demba finding bankers holding face-to-face meetings again,” said Barron’s. “Net interest margins are expected to rise as banks will soon be able to leverage their large deposit bases for high-yield loans.”

KBWB tracks the widely used KBW Nasdaq Bank Index.

“The Index is a modified market capitalization weighted index of companies that primarily conduct US banking. The index is created, managed and calculated by Keefe, Bruyette & Woods, Inc. and Nasdaq, Inc. and is composed of major US national money centers, regional banks and thrifts that are publicly traded in the US, ”said Invesco.

Instead of trying their hand at the futures market, investors can use KBWB as a game for increasing government bond yields, as bank stocks correlate positively with this scenario. Banks are also cutting costs and valuations are still attractive.

“Banks are streamlining their presence by closing and consolidating unnecessary branches. This has the potential to cut annual operating costs by 1% and improve earnings per share by 2%, assuming that stores are reduced by 15%, ”Barron added. “The bank valuations have not gotten too high. According to Dembas, the valuations of the regional banks are 12.7 times the expected earnings per share of 2022, just below the 20-year median of 14.4 times future earnings and well below the 20-year high of 20, 3. “

For more news, information and strategy, visit the ETF Education Channel.

The opinions and predictions expressed here are solely those of Tom Lydon and may not actually be fulfilled. Information on this website should not be used or construed as an offer to sell, the solicitation of an offer to buy, or a recommendation for any product.


Please enter your comment!
Please enter your name here