One month after the 2016 election, we turned negative on the bank stocks. They had rallied a whopping 30% over that one-month period…on the expectations that the President-elect would deregulate the industry in a way that would be very bullish for the group. The problem was that the group had already rallied 28% before the 2016 election, so we believed that the 66% rally in the group from early February to early December that year more than priced-in any positive news on the regulatory side of the equation. Therefore, we turned bearish on the group.
Over the next 34 months, we maintained our cautious stance due to the steady decline in interest rates and the continued flattening of the yield curve. We also never saw anything compelling in the charts that told us the group would finally begin to out-perform the S&P 500. Sure enough, since December 5th of 2016 (one month after the election), the KBE bank ETF has seen a net move of less than 1%...while the S&P 500 has rallied more than 34%!!! In other words, although the bank group has had very short-term periods when it out-performed, it has badly under-performed since we turned negative on the group in early December of that year.
Yes, some individual names (especially big names like JPM) have done very well, but as a group, they have continued to underperform this year. HOWEVER, this could all change if the KBE and the yield on the 10yr note can break above their key resistance levels.
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Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
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