Shares of exchange-traded funds (ETFs) that focus on bank stocks showed significant gains on Tuesday after a recent inflation report surprised Wall Street analysts.
The SPDR S&P Regional Banking ETF (KRE) saw an impressive surge, climbing 7.9% on Tuesday morning, according to FactSet data. Similarly, the Invesco KBW Bank ETF (KBWB), which holds major Wall Street banks, experienced a 5% increase.
This surge in U.S. bank stocks can be attributed to the tumble in U.S. Treasury yields following the latest consumer price index (CPI) data. The report revealed that headline inflation remained flat in October. Earlier this year, regional banks faced challenges due to concerns that elevated Treasury yields were negatively impacting their balance sheets, especially after Silicon Valley Bank’s collapse in March.
Although Treasury yields have been falling recently, they still remain higher this year due to the Federal Reserve’s efforts to combat significant inflation. In June 2022, the annual pace of inflation reached as high as 9.1%, as measured by the CPI.
However, inflation has been gradually decreasing since its peak in 2022. The October CPI data showed a further slowdown, with the rate of headline inflation dropping to 3.2% year over year, down from 3.7% in the previous 12 months. The Federal Reserve has been actively working towards bringing inflation down to its target of 2%.
As for the 10-year Treasury note yield, it was down approximately 17 basis points on Tuesday morning, reaching around 4.45% according to FactSet data.
These positive developments indicate a promising outlook for bank stocks and reflect the market’s growing confidence in the banking sector’s resilience amidst changing economic conditions.
Gains for Bank ETFs in Morning Trading Session
The top holdings of two major exchange-traded funds (ETFs) in the banking sector have experienced gains in the morning trading session on November 13th.
SPDR S&P Regional Banking ETF
The SPDR S&P Regional Banking ETF, managed by State Street Global Advisors, held Truist Financial Corp. (TFC), First Horizon Corp. (FHN), and M&T Bank Corp. (MTB) as its three largest holdings on this date.
Invesco KBW Bank ETF
Meanwhile, the Invesco KBW Bank ETF, per portfolio data on Invesco’s website, featured Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), Bank of America Corp. (BAC), Morgan Stanley (MS), and Citigroup Inc. (C) as some of its biggest holdings.
Goldman Sachs shares demonstrated strong performance, trading 3.7% higher during the morning session, positioning the stock as one of the best-performing within the Dow Jones Industrial Average, based on FactSet data at last check.
Notably, the broader U.S. stock market experienced significant gains on Tuesday morning, with the Dow DJIA surging over 500 points or 1.6%, the S&P 500 SPX rising 2%, and the Nasdaq Composite COMP advancing 2.3%, according to FactSet data at last check.
Persistent Year-to-Date Losses
However, it is important to note that the recent gains recorded by these bank ETFs are insufficient to offset their year-to-date losses.
The SPDR S&P Regional Banking ETF remains down approximately 24% in 2023, while the Invesco KBW Bank ETF has slumped over 18% year to date, based on FactSet data at last check.