15 DECEMBER 2023
The equal-weighted S&P 500 index is barely in positive territory this year, meaning the vast majority of the 500 constituent stocks are either flat or down. In fact, many of them are down heavily.
The bank stocks are a case in point and the chart below shows the KBW bank index, which tracks the share prices of the largest 24 US banks. Its 10%+ year-to-date loss (in U$ terms) has left financials as one of the worst performing equity sectors this year, although utilities and consumer staples are struggling too.
The entirety of this year’s losses can be attributed to the index’s 25% slump in March, when three US regional banks (SVB, Signature and First Republic) collapsed in response to surging Treasury yields. A degree of stability has since returned, courtesy of the Federal Reserve’s intervention, but bank stocks remain weak.
Perhaps the key takeaway is what this infers about the health of the US economy. Whilst the much anticipated recession will be avoided this year, the bank stocks and economic wellbeing tend to go hand-in-hand, so this depressed KBW index is strong evidence that the economy is struggling. The counter-argument is that bank stocks are cheap and could produce material gains if the economy holds up in 2024.
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