This article was originally published on ETFTrends.com.
Monday was a strong day for the broader market, but KRE modestly declined, extending its year-to-date loss to 5.39%.
“Investors pulled $547 million from the $4 billion SPDR S&P Regional Banking ETF, ticker KRE, in November, its biggest monthly outflow since January 2015 and the second straight month of net withdrawals,” reports Bloomberg.
Rising interest rates historically benefit regional banks, but that has not been the case this year. Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.
Risk-tolerant traders who want capitalize on the short-term volatility have a number of leveraged and inverse ETF options to enhance potential returns. For instance, the Direxion Daily Regional Banks 3x Bull Shares (DPST) can capitalize on short-term views on further strength in the financial sector, or the Direxion Daily Regional Banks 3x Bear Shares (WDRW) can express short-term hedge of the opposite.
The Struggle Is Real for Banks
“Banks have come under pressure recently as investors worry that rising rates might slow lending and raise the amount the firms have to pay customers in interest,” reports Bloomberg.
The slowing housing market is also seen as a drag on regional bank stocks and ETFs such as KRE. The he NAHB and Wells Fargo housing market index decreased to 60 points in November, the lowest level since the 59 recorded in August 2016. In contrast, the index showed a reading of 68 in October and a consensus reading of 67 among analysts. The eight point fall off was the biggest monthly drop since a 10-point fall in February 2014.
The Federal Reserve’s tighter monetary policy and interest rate hikes have contributed to the spike in mortgage rates, which jumped above 5% in October.
For more information on the financial sector, visit our financial category.
POPULAR ARTICLES AND RESOURCES FROM ETFTRENDS.COM
- Smart ETF Plays in a Volatile Market Environment
- 3 Economic Challenges George H.W. Bush Overcame During his Presidency
- Which Sectors Have Been Naughty and Nice in 2018
- Q&A with Industry Veteran Brian O’Donnell on ETF Distribution
- The Top 10 Health Insurance Trends of 2019