Lets take a look at the two sides of the US banking system to see if opportunities exist. We’ll compare the “too big to fail” large capped banks (via a few individual stocks) to the “too small to bother with” US regionals.
To start: Most of the smaller commercial and office space debt in the US has been through the smaller regional banking system. And there are alot of them! The US has more than 4000 banks in the US and 500 mutual banks! Clearly, the Fed is in a pickle if the situation gets too out of hand with this plethora of vulnerable lenders.
A main area of concern within the CRE (commercial real estate side) is office rental. In Canada, we just witnessed a win for civil servants to hold the “right” to stay home and work in their pajamas – a new precedent unheard of pre-pandemic. This trend has been seen in the US as well. Here’s a chart from TD illustrating the decline in US office space.
Meanwhile, mortgages on CRE properties are coming due…and that’s a bit of a problem – given the above.
The KRE chart below illustrates the epic plunge by the sector. After breaking support in the mid-$50’s, the ETF is down to an old resistance (new support) level near $38. You can see the RSI oversold signal on the chart, along with early divergence on the MACD histogram. The bottom pane is moneyflow, which may, perhaps, kinda be finding some support right now….
Clearly, this would be a trade, which would ONLY be entered upon a few days of positive movement, for the uber-risk orientated investor. That wouldn’t be me.
Are there any opportunities in the sector? Well, one could possibly look for regional banks in states with governments who lead less restrictive business strategies during the pandemic – combined with a strong business immigration trend. Witness Florida, who were leaders in re-opening their businesses. The historically high immigration to that state from more restrictive states has seen residents and businesses seeking more freedom, less tax, and better weather. The chart below, courtesy TD Bank, highlights this. Note Tampa and Miami at the bottom of the vacancy rates. So, while the stress on regional banks is pretty wide-spread, there may be a few gems in the group for investors willing to do a bit of digging. I have not done any work in this potential opportunity, but its food for thought…
Meanwhile, the bigger banks are showing more promise. Here’s Bank of America. Note the early signs of an oversold bounce in RSI and MACD. Moneyflow is basing. We’d like to see a move over $30 before becoming truly interested, but its worthy of watching.
Wells Fargo looks to be caught in a sideways channel. If it can hold about $38, it may hit $48. Some signs of momentum strength are appearing. Wait for a confirmation of support to hold.
JP Morgan certainly paints a different picture to the regionals. Its struggling to break $140 resistance right now, but if that breaks its conceivable that we could see the $165 area tested.
Finally, the last of the big US banks, Citibank. Another stock caught within a support/resistance channel. No signs of building momentum. A break through $53 would target $70-ish. Whatever the case, this chart is clearly more of a safe haven than taking on the regional banks in your portfolio.
We don’t hold any exposure to US banks or financials at this time. However, we are keeping an eye on the group. Seasonality ends a bit later than the broad indices for the group–into June rather than May. Speculators might be more interested in the regionals, particularly any with higher exposure to Florida. The above charts might provide some neartermed trading guidance in the large caps. We shall see how this all plays out.