Regional Bank Stocks Have Run Out of Steam. It Could Spell Trouble for the Market.

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Shares of the lenders have powered ahead even though they haven't posted results strong enough to change Wall Street's view of the outlook for earnings.

The recovery rally in regional bank stocks has petered out. That is a negative signal for the stock market.

But the ETF isn’t even close to reclaiming its 2023 peak of $64, and sellers were quick to come in to knock it lower from the high-40s in August. There just aren’t enough buyers of regional-bank stocks to send them back up. Because the stocks have been rising without profits and management forecasts strong enough to change analysts’ expectations, the fund is now trading for just under 10 times the aggregate earnings its component companies are expected to produce over the next year. That is up from just under seven times at the fund’s low point.

Revenue for the bank fund is expected to be about flat this year, with low single-digit growth in loan volumes acting as one factor keeping the top line from falling year over year. But that growth should moderate or even turn negative as higher short-term interest rates, which can take months to show their full effect, hit consumer demand.

 

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