Banks Have Had a Tough Year. They're Still Outperforming Tech. -- Barrons.com

By Teresa Rivas

Tech may have been Wall Street's darling over the past year, powered by the Magnificent Seven, but banks have been quietly outperforming the sector and broader market.

The performance comes even as news from the financial sector has been less than glowing.

Last spring brought the failure of Silicon Valley Bank parent SVB Financial in March. It sent shock waves through financials and the broader market, catching even bears off guard. By the second week of May, the SPDR S&P Bank ETF had reached its lowest point since 2020.

The whole episode, followed swiftly by the end of Credit Suisse after 167 years, left nerves rattled around the world, and plenty of concern about further trouble that hasn't entirely dissipated.

However, looking at stock charts, investors might be forgiven for forgetting anything bad ever happened.

Over the past 12 months, the S&P 500 has rallied just under 25%. That looks impressive -- until you look at the financial sector.

Over the same period, the Financial Selector Select Fund is up well over 26%, and the SPDR S&P Bank ETF has surged more than 40%. That puts the latter ahead of even the tech-fueled Nasdaq Composite, up nearly a third in the past 12 months.

Of course, one might argue performance was dragged upward by behemoths that were never in any real danger from the crisis. Banks such as JPMorgan Chase were a relative haven in the storm, and that firm's shares are also up 39% in the last year. Bank of America and Citigroup are also up over more than 35% over that period.

Regional banks such as Silicon Valley were hurt by the sharp increase in interest rates, as their bet on ultrasafe Treasuries and similar instruments turned out to not be so secure when that debt's value declined -- new bonds were paying higher yields. Furthermore, customer withdrawals forced them to sell at a loss. Big banks can get hit by this, too, but the regionals had fewer lines of business to tap than diversified financial giants, and the problem quickly escalated.

Other banks have run into issues since then, including New York Community Bancorp, which has been struggling since late January. It received a cash injection in March, and was rewarded earlier this month for delivering a fourth-quarter report that was less than dire.

Despite ongoing soft spots, this isn't a systematic crisis, and the SPDR S&P Regional Banking ETF has climbed more than 33% in the past 12 months, too.

That said, investors are still somewhat wary. On a year-to-date basis, the SPDR S&P Regional Bank ETF is down nearly 5%, while the SPDR S&P Bank ETF is only up about 1.5%. Only the Financial Selector Select Fund is still roughly keeping pace with the market, up around 8.2%, compared with the S&P 500's 8.8% gain and 10% for the Nasdaq. It has also been a tough earnings season for financials.

Still, that is a much better performance than many dared hope in the spring of 2023. What a difference a year makes.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 06, 2024 13:33 ET (17:33 GMT)

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