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The Regionals Worth Banking On?
As U.S. equities soared through the first two months of this year, bank stocks finally contributed. While there have been periods of outperformance for major bank stocks since the financial crisis, the group has struggled to establish any sort of legitimate market leadership role for an extended time frame over the past 24-30 months.
For the better part of the first quarter, it looked liked financials, the second-largest sector weight in the S&P 500 behind technology, were ready to finally be market leaders. Helped by largely good news stemming from the Federal Reserve's stress tests on the 19 largest U.S. financial institutions, bank stocks rallied, as many were able to increase their dividends and add to or initiate share buyback programs.
Things were going so well for bank stocks that even downtrodden Bank of America (NYSE: BAC), perhaps the most maligned bank in America, was the best-performing stock in the Dow Jones Industrial Average in the first quarter with a gain of roughly 70%. However, concerns over Europe along with string of weak economic data in the U.S., coupled with earnings reports that even as they beat expectations were just not good enough, had a spurred a correction in the space and the broad market at the start of the second quarter.
Still the gains from the first quarter were massive, leaving the banks with hefty year to date gains. These gains notched by the likes of Bank of America, J.P. Morgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC) are indicative of a broader trend in 2012. The money center banks with national presences have outperformed their regional counterparts.
Take the example of a quartet of bank ETFs competing against each other on a year-to-date basis. The quartet is comprised of the Financial Select Sector SPDR (NYSE: XLF), the SPDR S&P Bank ETF (NYSE: KBE) and the SPDR S&P Regional Banking ETF (NYSE: KRE).
All have offered solid returns this year, but XLF is up almost 17% and KBE is up nearly 16%. Those returns compare to 13.4% for KRE. XLF as the leader is easy to explain. That ETF is heavy on names like BofA, Wells Fargo, J.P. Morgan Chase and Goldman Sachs (NYSE: GS). In other words, XLF has benefited from investors embracing the most controversial bank stocks once again.
KBE benefits from its mix of national banks and super-regionals. Super regional banks like BB&T (NYSE: BBT) and U.S. Bancorp (NYSE: USB) aren't as big as BofA, but they're not confined to just one or two states, either.
Just as two examples, BB&T and U.S. Bancorp have never been ensconced in the amount of controversy that BofA, Citgroup (NYSE: C) and friends have been and that has clearly proven to be the driving factor behind regional banks as a group lagging the big money center firms. Investors have been willing to accept a bit more risk with bank stocks this year and that's driving high beta national banks higher.
If that trend reverses course, and it's showing signs of doing just that, expect some sleepy regional banking names with decent yields to come back into focus as investors look for value among bank stocks.
Things were going so well for bank stocks that even downtrodden Bank of America (NYSE: BAC), perhaps the most maligned bank in America, was the best-performing stock in the Dow Jones Industrial Average in the first quarter with a gain of roughly 70%. However, concerns over Europe along with string of weak economic data in the U.S., coupled with earnings reports that even as they beat expectations were just not good enough, had a spurred a correction in the space and the broad market at the start of the second quarter.
Still the gains from the first quarter were massive, leaving the banks with hefty year to date gains. These gains notched by the likes of Bank of America, J.P. Morgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC) are indicative of a broader trend in 2012. The money center banks with national presences have outperformed their regional counterparts.
Take the example of a quartet of bank ETFs competing against each other on a year-to-date basis. The quartet is comprised of the Financial Select Sector SPDR (NYSE: XLF), the SPDR S&P Bank ETF (NYSE: KBE) and the SPDR S&P Regional Banking ETF (NYSE: KRE).
KBE benefits from its mix of national banks and super-regionals. Super regional banks like BB&T (NYSE: BBT) and U.S. Bancorp (NYSE: USB) aren't as big as BofA, but they're not confined to just one or two states, either.
Just as two examples, BB&T and U.S. Bancorp have never been ensconced in the amount of controversy that BofA, Citgroup (NYSE: C) and friends have been and that has clearly proven to be the driving factor behind regional banks as a group lagging the big money center firms. Investors have been willing to accept a bit more risk with bank stocks this year and that's driving high beta national banks higher.
If that trend reverses course, and it's showing signs of doing just that, expect some sleepy regional banking names with decent yields to come back into focus as investors look for value among bank stocks.
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