Mish's Daily 12/18/22

Wall Street Banks favored over Main Street’s Regional Banks

December 18, 2022

The chart above displays the Regional Banking price spread over Wall Street Financiers since 2018.

KRE represents regional banks, and more prominent banking institutions are represented by the Financial Select Sector SPDR Fund (XLF).

The price gap between these valuations is wide, and the ratio illustrates the dramatic underperformance of regional banking stocks relative to the broader financial sector.

As this ratio moves lower, KRE is underperforming, and XLF is gaining.

We can’t predict when KRE will regain price strength, but rising interest rates, loan growth, and potential M&A activity favor a possible mean reversion.

Regional banks losing price strength does not give me confidence in next year potential. But maybe I’m wrong.