SPDR S&P Bank ETF (ARCA:KBE), Quote.Headers.trade-ideas

SPDR S&P Bank ETF

Financial Services

The fund generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index tracks the performance of publicly traded national money centers and leading regional banks. It may invest in equity securities that are not included in the index, cash and cash equivalents or money market instruments, such as repurchase agreements and money market funds.

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U.S. banks showed a strong comeback over the past week on bullish fundamentals in the space amid market rotation into undervalued segments. The probability of Donald Trump returning to the White House has risen significantly along with a Fed rate cut in September. Both are favorable for the banking sector. The robust second-quarter results of the banks also added to the strength.

Bank ETFs Soar on Trump Trade, September Rate Cut Bets

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US banks defy stress tests &amp; buy back $14B in shares, signaling confidence. JPM &amp; BAC slip, WFC up. Banks consider hypothetical crisis scenarios.

6 Biggest US Banks Ramp Up Buybacks, Undeterred By Stress Tests

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U.S. banking sector anticipates improved capital buffers in 2024 stress test, results to be released on June 26. Bank of America expects manageable surprises, closely monitoring Ally, Goldman Sachs, and Citigroup.

US Bank Stress Tests This Week, Analyst Expects Improvement: 8 Stocks, 3 ETFs To Watch

Macro Economic Events

FDIC Board Votes 3-2 To Adopt Bank Merger Guidance

FDIC Board To Vote On Bank-Merger Guidelines At Meeting Tuesday

Fed's Barr Says Will Propose Updating GSIB Surcharge To Account For Changes In Inflation And Economic Growth Under New Proposal; New Basel Draft Would Revise All Major Areas Of Original Plan, Including Operational, Market And Credit Risk Following Industry Criticism

Global

Fed's Barr Says Basel And GSIB Surcharge Re-Proposals Would Together Increase Capital For GSIBs By 9%, Original Plan Had Raised Their Capital By 19%; He Will Recommend Regulators Re-propose 'Basel Endgame' And Global Systemically Important Banks Surcharge Bank Capital Rules; Changes To Basel Re-Proposal Would Exempt Banks Under $250B In Assets From Most New Requirements Except For Recognizing Unrealized Gains And Losses Of Securities

Macro Notification

General

China's Central Bank Issues Gold Import Quotas to Several Banks After Temporary Pause

Legal

SEC Chair Gary Gensler To Testify At Senate Banking In September

Fed's Logan Says Making Progress In Getting Banks Ready To Use Discount Window; Fed Emergency Lending Programs Have Been Effective; All Eligible Banks Should Be Prepared For Discount Window; If Using Reciprocal Deposits, Should Raise FDIC Limits

U.S. banks showed a strong comeback over the past week on bullish fundamentals in the space amid market rotation into undervalued segments. The probability of Donald Trump returning to the White House has risen significantly along with a Fed rate cut in September. Both are favorable for the banking sector. The robust second-quarter results of the banks also added to the strength.
Given the optimism, bank ETFs soared to a new one-year high. First Trust NASDAQ ABA Community Bank Index Fund (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/qaba#NASDAQ">QABA</a>) was the biggest winner, jumping 16.2% in a week. This was followed by gains of 15% for Invesco KBW Regional Banking ETF (NASDAQ: <a class="ticker" href="https://www.benzinga.com/stock/kbwr#NASDAQ">KBWR</a>), 14.8% for SPDR S&amp;P Regional Banking ETF (ARCA:KRE), 13.3% for SPDR S&amp;P Bank ETF (ARCA:KBE) and 11% for iShares U.S. Regional Banks ETF (ARCA:IAT).
<h3>Trump Trade Resurge</h3>
The banks are well-positioned to benefit from Trump&#39;s deregulation and lower corporate tax policies. One of the most notable potential benefits for banks would come from Trump&#39;s focus on deregulation. During his first term, Trump&#39;s administration rolled back several regulations that were imposed after the 2008 financial crisis. This deregulation reduced compliance costs and increased profit margins for banks. A second Trump term could see a continuation or even an expansion of these deregulatory efforts, providing a more favorable operating environment for financial institutions.
<h3>Fed Rate Cut Bets</h3>
The latest inflation data and Fed Chairman Jerome Powell&#39;s recent hints have bolstered bets that the central bank will act by September. Powell said the Fed wouldn&#39;t wait for inflation to get to its 2% target before it began cutting because of the lag effects of tightening. Traders are now 100% certain that the Federal Reserve will cut interest rates by September, per CME Group.
A rate cut after two years of tightening would be a big relief for midsize banks, which are struggling with the impact of high rates on their profits and their borrowers. Lower rates will brighten the lenders&#39; earnings outlook in the coming quarters.
<h3>Solid Earnings</h3>
Big banks like Bank of America&nbsp;and Morgan Stanley&nbsp;saw a spike in their share prices on robust quarterly results. U.S. Bancorp and Citizens Financial Group also rose on positive quarterly results.
We have profiled the abovementioned ETFs below: 
First Trust NASDAQ ABA Community Bank Index Fund&nbsp;&ndash; 52-Week High: $53.87
First Trust NASDAQ ABA Community Bank Index Fund offers exposure to the largest banks and thrifts or their holding companies that are designated as banks by the Industry Classification Benchmark. It tracks the NASDAQ OMX ABA Community Bank Index, holding 125 stocks in its basket.
First Trust NASDAQ ABA Community Bank Index Fund has accumulated $62.9 million in its asset base and trades in a volume of around 14,000 shares a day on average. It charges 60 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.
Invesco KBW Regional Banking ETF &ndash; 52-Week High: $57.40
Invesco KBW Regional Banking ETF offers exposure to publicly traded U.S. regional banking and thrift companies by tracking the KBW Nasdaq Regional Banking Index. It holds 51 stocks in its basket, with none accounting for more than 4% of the assets.
Invesco KBW Regional Banking ETF is a relatively less popular and less liquid option in the space, with AUM of $53.8 million and an average daily volume of 4,000 shares. It charges 35 bps in fees per year from investors and has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
SPDR S&amp;P Regional Banking ETF &ndash; 52-Week High: $57.10
SPDR S&amp;P Regional Banking ETF provides exposure to the regional banks segment by tracking the S&amp;P Regional Banks Select Industry Index. It holds 141 stocks in its basket, with each accounting for no more than 2.3% of the assets.
SPDR S&amp;P Regional Banking ETF has AUM of $2.8 billion and charges 35 bps in annual fees. It trades in an average daily volume of 12 million shares and has a Zacks ETF Rank #4 (Sell) with a High risk outlook.
SPDR S&amp;P Bank ETF &ndash; 52-Week High: $53.19
SPDR S&amp;P Bank ETF offers equal-weight exposure to 92 banking stocks by tracking the S&amp;P Banks Select Industry Index. Regional banks dominate the portfolio with a 73.9% share, while diversified banks, commercial &amp; residential mortgage finance, diversified financial services and asset management &amp; custody banks take the remainder.
SPDR S&amp;P Bank ETF has amassed $1.6 billion in its asset base while trading in a heavy volume of 1.4 million shares a day, on average. The product charges 35 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.
iShares U.S. Regional Banks ETF &ndash; 52-Week High: $47.08
iShares U.S. Regional Banks ETF offers exposure to 35 small and mid-cap regional bank stocks by tracking the Dow Jones U.S. Select Regional Banks Index. It is largely concentrated on the top three firms with a double-digit allocation each.
iShares U.S. Regional Banks ETF has amassed $604.2 million in its asset base while seeing a good volume of 153,000 shares a day. The product charges 40 bps in annual fees and has a Zacks ETF Rank #3 with a High risk outlook.
<a href="https://www.zacks.com/stock/news/2304444/bank-etfs-soar-on-trump-trade-september-rate-cut-bets?cid=CS-BENZ-FT-etf_news_and_commentary-2304444">To read this article on Zacks.com click here.</a>

Fed's Powell Says Relying On Banking Agencies To Lead Fight On Climate Change Is A Big Mistake; Fed Won't Force Banks To Adopt Climate Transition Plans; We Are Not Climate Policymakers And Don't Have That Mandate; Key To Our Independence Is Sticking To The Job Given By Congress; Fed Can Only Ensure Banks Are Able To Absorb Costs Of Climate Change

Fed's Powell Says High Fixed Costs From Regulation Might Drive U.S. Banking Sector Consolidation; Banks Also Consolidating To Manage Technology Costs

<a href="https://financialservices.house.gov/" title="https://financialservices.house.gov/">https://financialservices.house.gov/</a>

Fed Chair Powell Says We Have Increased Transparency On Bank Stress Tests Over Time, Open To Improving Further

Fed Chair Powell Says Financial Regulators Have Very, Very Limited Role With Climate

Fed Chair Powell Says  We Want To Have A Sustainable Set Of Rules For Banks

<a href="https://www.youtube.com/watch?v=rfzg07kXD6M" title="https://www.youtube.com/watch?v=rfzg07kXD6M">https://www.youtube.com/watch?v=rfzg07kXD6M</a>

Fed Chair Powell Asked About Latest Stress Test Results, Says Banking Sector On Strong Financial Footing

HSBC

Fed Bank Stress Test Results: BMO, Citizens Financial And HSBC Saw Lowest Capital Ratios Under Stress Test; Banks Permitted To Report Capital Plans To Investors Beginning Friday Afternoon After Us Market Close

Fed Bank Stress Test Results: Higher Expenses And Lower Fee Income Also Contributed To Steeper Stress Test Losses; Increases In Bank Credit Card Balances And Higher Delinquency Rates Drove Greater Hypothetical Losses; Charles Schwab, Bank Of New York Mellon, JPMorgan Chase And Morgan Stanley Among Strongest Performing Banks

The six biggest banks in the U.S. have not let this<a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/06/39461418/us-bank-stress-tests-this-week-analyst-expects-improvement-8-stocks-3-etfs-to-watch"> week&#8217;s stress tests</a> on capital levels deter them from returning value to shareholders.
JPMorgan Chase &amp; Co. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/JPM#NYSE">JPM</a>), Bank of America Corporation (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BAC#NYSE">BAC</a>), Wells Fargo &amp; Company (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/WFM#NYSE">WFM</a>), Citigroup Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/C#NYSE">C</a>), U.S. Bancorp (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/USB#NYSE">USB</a>) and The PNC Financial Services Group, Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/PNC#NYSE">PNC</a>) bought back more than $14 billion in shares in the first quarter, registering a 73% leap from the pace set in the last six months of 2023, Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-06-26/wall-street-banks-accelerate-buybacks-ahead-of-fed-stress-tests?srnd=economics-v2&amp;sref=TBDibEcD">reported</a>.
The annual stress test, which came out of the 2008 financial crisis and is set to release the latest results on Wednesday, often determines how eager banks are in returning capital to shareholders through dividends and buybacks.
The yearly exams require banks to consider hypothetical crisis scenarios and estimate the losses they might sustain based on their books of business as a way to determine how much capital they can pay out to investors, based on a minimum requirement known as the stress capital buffer. 
Also read: <a href="https://www.benzinga.com/economics/24/06/39492319/fed-gov-cook-calls-for-lower-interest-rates-at-some-point">Fed Gov. Cook Calls For Lower Interest Rates &#8216;At Some Point&#8217;</a>
They had initially held back on buybacks last year in response to new capital-rule proposals, but the Fed has indicated loosening those measures through &#8220;broad and material changes,&#8221; according to Chairman Jerome Powell.
The proposals, which are called Basel III Endgame and were unveiled in 2023 by The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of Currency, would require banks to up their capital by 19%. The Fed, however, has shown changes that would result in a capital increase of only 5%, according to Bloomberg.
Price action: JPMorgan Chase and Bank of America both slipped 0.85% in Wednesday&#8217;s early-morning trading, while Wells Fargo ticked up 0.52%. Citigroup declined 1.22% as U.S. Bancorp shed 1.02% and PNC Financial Services dipped 0.52%.
Invesco KBW Bank ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/KBWB#NASDAQ">KBWB</a>) lost 0.80% in the early-morning session, while SPDR S&amp;P Bank ETF ARCA:KBE) and First Trust Nasdaq Bank ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/FTXO#NASDAQ">FTXO</a>) both fell 0.85.
Read now: <a href="https://www.benzinga.com/government/24/06/39470021/janet-yellen-says-inflation-to-come-down-to-feds-2-target-by-2025-dismisses-possibility-of-us-recess">Janet Yellen Says &#8216;Inflation To Come Down&#8217; To &#8216;Fed&#8217;s 2% Target&#8217; By 2025, Dismisses Possibility Of US Recession</a>
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Federal Reserve Proposes Weaker Version Of Bank Capital Overhaul

The U.S. banking sector is bracing for the 2024 stress test results, scheduled to be released Wednesday <a href="https://www.benzinga.com/markets">after the market closes</a>.
Bank of America analyst Ebrahim H. Poonawala expects this year&#8217;s stress test to show overall improved capital buffers compared to 2023, given the moderately better severely adverse scenario outlined by the Federal Reserve.
<h1 class="wp-block-heading">Improved Capital Buffers Expected</h1>
According to Poonawala, banks are entering the 2024 stress test with approximately 300 basis points (bp) of excess Common Equity Tier 1 (CET1) capital above regulatory minimums, a notable increase from around 185 bp last year. 
&#8220;Surprises from the annual stress test results are inevitable given the inherent opacity, but we expect these to be manageable,&#8221; Poonawala stated. 
The improved capital position would imply a better ability to absorb an increase in the stress capital buffer, which is a positive development as banks navigate real-life challenges posed by the current macroeconomic backdrop and changing regulatory attitudes.
<h1 class="wp-block-heading">Bank Stress Test&#8217;s Severely Adverse Scenario</h1>
The 2024 stress test&#8217;s four scenarios, designed to provide the Federal Reserve with insight into the resiliency of the U.S. banking system, focuses on funding stress and the failure of five large hedge funds. 
In the Fed&#8217;s hypothetical severely adverse stress scenario, the Dow Jones Index is expected to fall 55%, the unemployment rate to rise by 6.3 percentage points to 10%, the VIX or fear index to spike to 75, and the residential and commercial real estate (CRE) markets to experience declines of 36% and 40%, respectively.
Poonawala noted, &#8220;We wondered if the Fed would inject a much steeper fall in CRE prices given the heightened focus on this asset class. CRE prices are expected to decline by 40% from start to trough, consistent with prior years (&#8217;18, &#8217;21, and &#8217;23).&#8221;
According to Bank of America, there is sensitivity to the potential for the Fed to emphasize certain issues, such as CRE, which could lead to unexpected outcomes.
<h1 class="wp-block-heading">Bank Stocks And ETFs To Watch</h1>
Bank of America is closely monitoring the performance of several banks, including the five new stress test participants: Ally Financial Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ALLY#NYSE">ALLY</a>), Fifth Third Bancorp (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FITB#NYSE">FITB</a>), Huntington Bancshares Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/HBAN#NASDAQ">HBAN</a>), KeyCorp (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/KEY#NYSE">KEY</a>), and Regions Financial Corp. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/RF#NYSE">RF</a>).&nbsp;
&#8220;Banks that did not participate in last year&#8217;s stress test could potentially experience harsher loss rates given a worse outlook for GDP, unemployment rate, and CRE values vs. 2022,&#8221; Poonawala stated. 
Other institutions of particular interest according to Bank of America are Goldman Sachs Group Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GS#NYSE">GS</a>), Citigroup Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/C#NYSE">C</a>) and M&amp;T Bank Corporation (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/MTB#NYSE">MTB</a>).
With a 90 bp decline in stress-test capital buffers (SCB) from 2023 to 2021, driven by reduced exposure to private investments, Goldman Sachs may see continued relief and capital optimization. &#8220;Lower CET1 req. should be viewed positively, supportive of stock momentum,&#8221; Bank of America wrote.
Citigroup would also benefit from a lower CET1 requirement since it could facilitate increased share buybacks over the next year.
With the highest exposure to CRE loans and approximately 250 bp of excess capital above regulatory minimums, M&amp;T is managing towards an 11% CET1 target.
Last year, the bank index closed 1.8% higher (compared to 0.4% for the S&amp;P 500) following the stress test results. Banks that saw a decline in their SCBs rose by 2.6%, those with unchanged SCBs increased by 1.1%, and those with higher SCBs gained 0.4%. This year, investors will be keenly watching for similar trends.
&#8220;Last year banks where the SCB declined, outperformed the bank index (BKX) by 80bp on average the following day and by 220bp vs. those that saw their SCBs rise,&#8221; Poonawala wrote. 
Three banking-related ETFs to keep an eye on this week are:
<ul>
<li>Financial Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLF#NYSE">XLF</a>)</li>
<li>SPDR S&amp;P Bank ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/KBE#NYSE">KBE</a>)</li>
<li>SPDR S&amp;P Regional Banking ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/KRE#NYSE">KRE</a>)</li>
</ul>
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Photo: Shutterstock

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SPDR S&P Bank ETF

Overview

SPDR S&P Bank ETF (ARCA:KBE), Quote.Headers.trade-ideas