Exchange-traded funds tracking U.S. banks saw significant outflows since the start of October and ahead of earnings as investors took money off the table fearing elevated interest rates and stricter regulations in the aftermath of the regional bank crisis.
In the first 10 days of this month, the $1.46 billion Invesco KBW Bank ETF (KBWB-Q) saw net outflows of $336.18 million, while the $2.49 billion SPDR S&P Regional Banking ETF (KRE-A) saw net outflows of $19.58 million.
Overall, the Invesco fund and the SPDR fund posted net inflows of $381.16 million and $565.15 million so far this year.
The prices of the ETFs are down 23% and 28.4%, respectively, as bank stocks fell sharply earlier this year following the collapse of California-based Silicon Valley Bank and two other U.S. lenders.
The U.S. Federal Reserve’s elevated interest rates have also raised costs at banks, which now must pay more interest on deposits to keep customers from seeking higher-yielding alternatives.
“The fundamental case for banks has certainly deteriorated over the course of the year,” said Art Hogan, chief market strategist at B. Riley Wealth.
“The fact that they’re not all in tough shape has investors taking a cautious stance and that is certainly illustrated by the exodus we’ve seen this year in some of the more popular ETFs.”
JPMorgan Chase, Citigroup and Wells Fargo will kick off the quarterly earnings season for big U.S. banks on Friday.
Profits at the biggest U.S. consumer lenders are likely to rise in the third quarter, in contrast with investment banks still facing a dealmaking slump, analysts said.
“Investors appear to be taking off risk by selling out of banks,” said Bryan Armour, director of passive strategies research for North America at Morningstar.
“Although, our equity research team indicates that selling may have pushed prices down too far and created a buying opportunity.”
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