On Thursday stocks fell as a sell-off in government bonds had a negative impact on many yield-sensitive industries. The 10-year benchmark Treasury note rose to 1.843% from 1.790% on Wednesday.
Investors, it seems, have finally accepted the probability of a rate hike by the Fed by December 31. And with a presidential election before then, and the many uncertainties as to the winner’s policies, stock holders yielded to the pressure of an accumulation of uncertainties.
Some analysts were even mentioning the possibility of inflation as U.S. GDP is to be announced tomorrow and is projected to be at a 2.5% annualized rate of increase for Q3.
Two industries, real-estate and utilities, which tend to be negatively impacted by higher interest rates, fell 2.4% and 0.5%, respectively.
Better-than-expected earnings were ignored with the focus on higher rates and negative reports from Ford Motor Company (NYSE:F), Raytheon Company (NYSE:RTN), and United Parcel Service, Inc. (NYSE:UPS). But banks, both domestic and foreign, did well as investors recognized the benefit of higher rates to financial institutions. Barclays PLC (ADR) (NYSE:BCS) gained 4.8%, Deutsche Bank AG (USA) (NYSE:DB) rose 0.6%, and Bank of America Corp (NYSE:BAC) gained 0.25%.
At the close, the Dow Jones Industrial Average fell 30 points to 18,170, the S&P 500 lost 6, closing at 2,133, the Nasdaq was hit with a loss of 34 points at 5,216, and the Russell 2000 fell 15 points to 1,190.
The NYSE’s primary exchange traded 984 million shares with total volume of 4.2 billion shares, while the Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 2.6-to-1, and on the Nasdaq, decliners led by 2-to-1. Blocks on the NYSE increased to 6,029 from 5,717 on Wednesday.
Rather than dwelling on the negative, we will examine the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE), an exchange-traded fund of bank stocks that have done well for most of the year, and made new highs yesterday.
Regional bank stocks have done extremely well since the beginning of the second quarter. An orderly bull channel is the main characteristic of this chart.
With two exceptions, the KRE exceeded its bullish resistance line in April and again in June, to be followed by a high-volume round of profit-taking in late June and early July. The bull channel was quickly resumed in mid-July and has held its resistance and support lines since then.
Yesterday, KRE made a new high for the year, closing at $44.
Conclusion
As our readers know, I’ve been recommending banks (and specifically regional bank stocks) since fears spread of a pending rate hike last year. They are one of the most obvious choices in the stock market. Banks (again, specifically regional banks) make more money when rates rise since they benefit for an increased spread between what they pay savings holders, or borrow from the Federal Reserve, and what they charge on loans.
Also, consider our Trade of the Day: Bank of New York Mellon Corp (NYSE:BK) — the bank that Alexander Hamilton founded.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
