Bank stocks surge after inflation report, regional banking ETF on pace for biggest gain since 2021

Exchange-traded funds that buy bank stocks were surging Tuesday after a reading on inflation was softer than Wall Street analysts expected.

Shares of the SPDR S&P Regional Banking ETF
were soaring 7.8% on Tuesday afternoon, on track for their largest percentage increase since January 2021, according to Dow Jones Market Data. The Invesco KBW Bank ETF
which holds major Wall Street banks, was up slightly more than 5%, putting it on pace for its biggest daily jump since November 2022.

U.S. bank stocks are jumping as U.S. Treasury yields tumble after fresh data Tuesday from the consumer-price-index showed headline inflation was flat in October. Regional banks had been hammered earlier this year on investor worries that elevated Treasury yields were pressuring their balance sheets, after Silicon Valley Bank collapsed in March.

While Treasury yields were falling Tuesday, they remain up so far this year in the wake of the Federal Reserve aggressively raising its benchmark interest rate to tame the hottest inflation in decades. The annual pace of inflation ran as hot as 9.1% in June 2022, as measured by the consumer-price index.

Inflation has fallen from its 2022 peak, with the consumer-price index showing further signs of easing in October. The rate of headline CPI data slowed year over year to 3.2%, from 3.7% in the 12 months through September, according to a report Tuesday from the Bureau of Labor Statistics. The Fed has been aiming to bring inflation down to its 2% target.

Meanwhile, the yield on the 10-year Treasury note
was down about 17 basis points on Tuesday morning at around 4.45%, according to FactSet data, at last check. 

The top three holdings of the SPDR S&P Regional Banking ETF on Nov. 13 were Truist Financial Corp.
First Horizon Corp.
and M&T Bank Corp.
according to data on the website of State Street Global Advisors. 

Invesco KBW Bank ETF’s biggest holdings on that same date included Goldman Sachs Group Inc.
JPMorgan Chase & Co.
Wells Fargo & Co.
Bank of America Corp.
Morgan Stanley
and Citigroup Inc.
portfolio data on Invesco’s website show.

Goldman shares were trading 3.7% higher on Tuesday, ranking among the best-performing stocks in the Dow Jones Industrial Average in the morning trading session, according to FactSet data, at last check. 

The U.S. stock market was broadly seeing sharp gains Tuesday morning, with the Dow
jumping more than 500 points, or 1.6%, while the  S&P 500
climbed 2% and the Nasdaq Composite
advancing 2.3%, according to FactSet data, at last check. 

Tuesday’s big gains for bank ETFs aren’t close to erasing losses seen so far this year.

SPDR S&P Regional Banking ETF remains down around 24% in 2023, while the Invesco KBW Bank ETF has slumped more than 18% year to date, according to FactSet data, at last check.

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