Retail traders are constantly faced with so many indicators that their screens often become confused with various studies and charts, blurring what is actually happening. However, all indicators come from the same source: the price action of a stock or any other instrument, so understanding the source is key above all else.
However, price action alone won’t give investors much of an answer, at least not on its own. When analyzing the price action of a stock or exchange-traded fund (ETF), an individual asset should be considered in the context of other similar asset classes or instruments so that a broader trend can be identified as a narrative. Today’s price action in the financial, bond and energy sectors can provide investors with such information.
Understanding how price action occurs in Regional Bank ETF SPDR S&P NYSEARCA:KRE means that compared to the recent gains in the S&P 500 as a whole, this is a start that then takes on a larger—and clearer—shape when viewed alongside the recent moves in the S&P 500. iShares 20+ Year Treasury Bond ETF NASDAQ: TLT. Finally, there is another level of context in the inflation and recession camps generated by these relationships, and that is US Oil Fund NYSEARCA: USAGE.
SPDR S&P Regional Bank ETF: Divergence During Easing Cycle
With the Federal Reserve cutting interest rates by 0.25 percentage points and signaling a slower rate of decline in 2025, rate-sensitive asset classes could begin to see bullish price action as the market anticipates broader economic fallout. This is where the divergence between the recent gains in the S&P 500 and the regional banking ETF gets interesting.
SPDR S&P Regional Banking ETF today
Regional Bank ETF SPDR S&P
(As of 12/20/2024 5:31 PM ET)
- 52 week range
- $45.46
▼
$70.25
- Dividend yield
- 2.42%
- Assets under management
- $5.22 billion
Why won’t a rate-sensitive industry like regional banks rally after news of an ongoing easing cycle and rate cuts? More importantly, why are other financial sector stocks doing so much better than these smaller bank stocks? The answer to this question is twofold, and here it is.
First of all, banks love Goldman Sachs Group Inc. New York Stock Exchange: GS And JP Morgan Chase & Co. New York Stock Exchange: JPM exhibit better price action than these regional banks because they are not as exposed to the domestic business cycle. When rates come down, these banks will be able to take advantage of market volatility in their trading divisions and increase the number of deals in investment banking.
Regional banks, on the other hand, rely more on business loans and local mortgages, two markets that are now in what could be called a downturn.
iShares 20+ Year Treasury Bond ETF: Bonds Reject Fed Taper Decision
When interest rates fall, bond yields also fall. However, bond prices are now breaking away from their recent highs (yields are rising), which can be perceived as a defiant stance against the Fed’s decision to cut rates.
iShares 20+ Year Treasury Bond ETF Today
iShares 20+ Year Treasury ETF
(As of 12/20/2024 5:45 PM ET)
- 52 week range
- $87.34
▼
US$101.64
- Dividend yield
- 3.85%
- Assets under management
- $57.05 billion
The implications are that if the Fed continues to ease policy, inflation could return and lead to lower business activity (domestic activity) due to the failure to pass on costs to consumers. This may be why regional banks are moving away from broader markets and why bonds are now falling.
Given that some of the inflation-friendly trades in bonds and regional banks such as Gold Shares SPDR NYSEARCA:GLDinvestors can safely begin to assume that today’s price action ahead of further Fed decisions is the market’s way of saying that they expect inflation to return.
Paul Tudor Jones and Stanley Druckenmiller were brave enough to make this point public. In recent interviews, they have reiterated their economic views, agreeing on a common path back to inflation. So far they have been right, as inflation trades have started to pay off.
US Oil Fund: Warren Buffett’s dominoes lined up
The final layer to confirm this potential inflation trade would be commodities, this time oil prices. As of December 18, 2024, the price of oil rose by more than 1.6% and exceeded $70.50 per barrel. Given that this jump occurred on the day the Fed decided to cut interest rates, investors could see the whole combination adding to inflationary pressures.
US Oil Fund Today
US Oil Fund
(As of 12/20/2024 5:40 PM ET)
- 52 week range
- $65.48
▼
$83.41
- Dividend yield
- 0.00%
- Assets under management
- $1.12 billion
Then again, this may be what Warren Buffett envisioned when he bought up to 29% of the stock. Occidental Petroleum Co. New York Stock Exchange: OXYoutright bullish bet on future oil prices. Another buyer hungry for higher oil prices was an institutional investor.
FFG Partners representatives have decided to increase their holdings in the US Oil Fund by 2.2% as of December 2024, bringing their net position to $5.3 million today, another bullish indicator for investors who may be considering moving forward in this potential inflationary behavior from other markets. .
Before you consider the SPDR S&P Regional Banking ETF, you should hear this.
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