Banks Stocks, a Key Part of the S&P 500, Appear Poised for a Move Higher
Financial stocks, including shares of banks, make up 16.2% of the S&P 500 index, second only to information technology, at 20.8%. Thus, they are an important part of that broad market stock index. Let's examine how the banks are doing.
Over the past year, when the Federal Reserve has talked seriously about hiking rates, the bank stocks usually have had a positive reaction. That's because a higher federal funds rate allows banks to boost the rates they charge customers for loans, as this Bloomberg article points out. It also allows banks to earn more on other investments.
To see how this sector is doing, let's take a look at the daily chart of the KBW Bank Index, which tracks 24 of the largest U.S. bank stocks.
Chart composed by The Informed Trader, courtesy of Stockcharts
After this week's release of the minutes from the last Federal Open Market Committee meeting, we saw a positive reaction in the bank stocks given that the bias is now toward a December rate hike barring something unforeseen in the interim. The sector looks like it's trying to set a choppy handle off its 10-month base with the key pivot coming at the $76-$77 area. Support continues in place off the now rising 20-day and 50-day exponential moving averages, and as long as that area holds, the setup remains favorable.
Next, let's take a look at a couple of individual bank stocks. The first is
Bank of America
(BAC) - Get Report
, which is in a very long-term base with a key pivot of about $18-18.50. The stock has been basing between $15.00 and $18.00:
Chart composed by The Informed Trader, courtesy of Stockcharts
A volume breakout through the $18.00-18.50 area would allow the stock to clear into a "thin zone" due to a lack of overhead price resistance best seen on the left side of the chart.
Next, lets take a look at SunTrust Banks (STI) - Get Report , one of our favorite regional bank stocks.
Chart composed by The Informed Trader, courtesy of Stockcharts
Suntrust Banks is also setting up in a medium-term base similar to a number of names in the group. Most would benefit from the beginning of a rate-hike cycle, so keep close tabs on the Federal Open Market Committee scheduled for Dec. 15-16.
During the course of 2015 the broad market has been locked in a trading range, and little changed overall amid the swings. If the stock market is to see a leg higher we would expect to see the banks participate, especially if the Federal Reserve does start a cycle of interest rate hikes in the not too distant future.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.