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This Key Group Of Stocks Could Face A Major Headwind

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The elections in the USA have influenced the stock market heavily. After Trump was elected the bank stocks seem to have plummeted down and are not performing well compared to the wider market. Financial investors have gotten their share during the election campaign based on talks of corporate tax cuts and looser supervision and regulation. Deregulation is desired by investment banks, but it seems that they will not get free hands completely. This also includes the increase in interest rates by the Federal Reserve Bank.

The correlation between the S&P Bank ETF (KBE) and the S&P 500 index has been very close, which could the determine the future course of the events in the stock market. After two months of stillness, the banks start to regain their strength which is reflected in the ETF (KBE) and the S&P 500 correlation.

The policy that the Federal Reserve Bank will acquire is also going to be crucial since they already re-increased the rates in December. The interest rates concern many Americans and investors but the yield curve is far more important now, which is very steep and as it indicates the money making spot in the market, its flatness has caused some concern.

The yield curve and the bank stocks are not in line, and they have created a gap which could lead to a major headwind in the banks. Banks also profit from the long-term and short-term rates because they are not the same, giving the banks an advantage in the market. Hence they borrow on a short-term basis but lend long-term. According to Gibbs (S&P Global), when asked: “Are the valuations stretched for banks?”, she replies that they are not, regarding that they stayed in range for the last several months, and their earnings have remained in line with the S&P index for this year (10%-12%), and that as long as the market is slow as it is there will be no major changes and that they are behaving in accordance with the market (at least for now).

So, when we consider this statement, we have to ask ourselves what will happen when the market starts moving faster and when it completely recovers from the financial crisis of 2008? Are the major investment banks going to exceed the S&P index? In a time as this, it is hard to tell what the future economy holds for us, so all investors should observe the market carefully to avoid major failure of their stocks.