SPDR KBW Bank ETF in a World of Hurt: Will the Broader Market Follow?

| About: SPDR S&P (KBE)

It’d be irresponsible to suggest that the U.S. is staring down the barrel of a second credit crisis. The 3-month LIBOR rate has dropped from a 2010 peak of .055% to .031% in less than 2 months, suggesting that banks are loaning to one another and that credit may be easing.

With that noted, 3 of the most prominent banks in the U.S. hit new 52-week lows during the Wednesday, 8/25/10 trading session. The list includes Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and BB&T (NYSE:BBT).

What’s more, these ”too-big-too-fails” constitute 21.25% of the SPDR KBW Bank Fund (NYSEARCA:KBE). It should come as no surprise, then, that KBE was within -3% of a 52-week low during Wednesday’s early morning sell-off.

Equally disturbing, KBE has fallen 26% below its April top, has broken well below its July lows, and is currently charting an ominous pattern of “lower lows.” If KBE were to continue along this path, it’s hard to imagine the S&P 500 fending off a bear assault. At 1055, the index is 13.5% below its April pinnacle.

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So why is this happening? Is it the lack of home-buying activity? Is it deteriorating quality of loans on the books, as more folks default on home equity loans? Did FINREG’s restrictions on consumer banking fees and proprietary trading activity damage earnings prospects? Sadly, it may be all of the above.

Credit crisis redux? Not likely. Earnings uncertainty amid more write-downs and less revenue? Very likely.

Is there any reason to be bullish on the banking industry? There’s one possibility; that is, it is conceivable that write-downs, lack of loan demand and FINREG have been “priced in” at this point.

The CEO of Bank of America, Brian Moynihan, bought 30,000 shares on Monday for a few thousand shy of $400k at $13.03 per share. Insiders don’t typically make substantial purchases when they’re lacking confidence in the businesses they run.

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.