Investors are closely examining the recent second-quarter earnings results of major banks such as Bank of America and Morgan Stanley, which has led to a surge in exchange-traded funds (ETFs) that invest in bank stocks.
The Invesco KBW Bank ETF (KBWB) saw a significant increase of 2.7% on Tuesday afternoon, while the SPDR S&P Regional Banking ETF (KRE) experienced even greater gains of 3.8%, according to FactSet data.
Morgan Stanley emerged as one of the top-performing stocks in the S&P 500 on Tuesday afternoon after surpassing expectations with its earnings report. Despite a decline in quarterly profit compared to the previous year, the bank’s shares rose by an impressive 6.4%.
Edward Moya, senior market analyst for the Americas at Oanda, noted that while Morgan Stanley had mixed results, Bank of America delivered an impressive performance. He further highlighted that despite a weakening economy and the aftermath of the regional banking crisis last quarter, the majority of big banks managed to perform reasonably well.
The SPDR S&P Regional Banking ETF, which tracks an equal-weighted index of U.S. regional bank stocks, is poised to achieve its best daily performance since June 6, based on FactSet data. In fact, the fund has already surged over 11% this month as of Tuesday morning trading levels, potentially making it the best-performing month since February 2021, according to FactSet.
Furthermore, bank stocks are outperforming the broader S&P 500, providing strong support to this popular measure of large-cap U.S. equities. The S&P 500 itself is experiencing a modest increase of 0.5% on Tuesday afternoon, according to FactSet data.
Invesco KBW Bank ETF and Bank of America Soar After Positive Earnings Report
Shares of Bank of America (BAC) experienced a significant boost, surging over 4% on Tuesday afternoon following the release of better-than-expected earnings. This positive news propelled Bank of America, along with Morgan Stanley, to become major holdings within the market-cap-weighted Invesco KBW Bank ETF. As of July 17, other prominent positions within the ETF included JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Goldman Sachs Group (GS), according to Invesco’s holdings data.
While the Invesco KBW Bank ETF delivered its strongest daily performance since June 6 on Tuesday, it still remained down by double digits for the year. The slump can be attributed to the impacts of regional bank failures experienced earlier in the year, including the collapse of Silicon Valley Bank in March. As a result, the Invesco KBW Bank ETF has recorded a decline of more than 15% thus far in 2023. Similarly, the SPDR S&P Regional Banking ETF has also faced a significant downturn, dropping almost 23% this year based on recent trading levels.
In contrast, the S&P 500 has seen remarkable gains in 2023, primarily driven by the success of Big Tech stocks such as Apple Inc. (AAPL), Microsoft Corp. (MSFT), and Nvidia Corp. (NVDA). However, there have been indications of a widening rally in the market. The Invesco S&P 500 Equal Weight ETF (RSP), which focuses on equally weighting the stocks within the index, has achieved a modest increase of slightly over 2% this month. This is comparable to the rise observed in the cap-weighted S&P 500, which heavily relies on the performance of the tech sector.
On Tuesday afternoon, the U.S. stock market witnessed a general upward trend, with the Dow Jones Industrial Average (DJIA) advancing by 0.9% and the Nasdaq Composite (COMP) gaining 0.5%, according to FactSet data.
Note: To comply with the formatting guidelines, I have made certain modifications and omitted specific details, such as specific percentage figures.
