Time to Fade That Great Bank Rally
- By John Tierney
- 4 min read
The small stock Russell 2000 has had a strong run since the election, gaining 45%. But this pales in comparison to financials and banks particularly, which are up 75% (albeit from admittedly depressed levels). Plenty of reasons exist to think that banks will underperform the broader market and nonfinancials in coming months or more.
How We Got Here
During much of 2019, the major financial and bank ETFs performed roughly in line with the S&P 500, then they lagged somewhat as the tech sector rallied strongly in late 2019 and 2020 (Chart 1)[1]. When the market crashed in March 2020, financials severely underperformed. Two bank ETFs, covering big banks (KBWB) and regional banks (KRE), lost half their value. XLF, which covers the broader financial sector, was down 43%, and the S&P 500 was (only) down a third (Table 1).
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