Bank stocks are breaking out sharply.
The SPDR S&P Bank ETF (KBE) hit its highest level since 2007 in trading on Thursday, driven by the yield on the 10-year US Treasury note that rose to a 14-month high. The moves came despite the Federal Reserve’s statement Wednesday that interest rates would stay near zero through at least 2023.
Two traders told CNBC Thursday that while bank stocks are attractive over the long term, it is worth waiting for a pullback to buy in.
“While I’m very optimistic about bank stocks over the long term … they are getting pretty overbought, as is the 10-year note return,” said Matt Maley, chief marketing strategist at Miller Tobacco CNBC’s “trading nation.”
The KBE’s relative strength index – a momentum indicator haunted by chart analysts – is the most overbought in three years, meaning it is “ripe for a small pullback,” said Maley.
To make matters worse for investors, the 10-year yield is the most overbought since 1994, the strategist warned.
“I currently believe that while the Fed is talking about doubling on short-term rates, it is more hawkish on long-term rates because they are willing to let inflation run higher,” said Maley.
“That means … rates will rise over time, but the short-term technical picture tells me they should pull back a little,” he said. “So I wouldn’t jump back into these bank stocks at these levels. I would let them come back and then add positions.”
If this pullback occurs, three stocks will offer particularly good opportunities, said Nancy Tengler, chief investment officer of Laffer Tengler Investments, in the same interview with Trading Nation.
“We have become overweight [banks] In late summer, we highlighted companies that were exposed to interest rate risk but were also diversified in terms of noninterest income, “said Tengler.
Her company’s largest holdings in this area are JPMorgan, PNC Financial and Goldman Sachs, which are also part of Laffer Tengler’s “12 best ideas” portfolio.
“While I agree with Matt – stocks have been going hard so you don’t have to step in with both feet – these companies keep looking better over time,” said Tengler.
“I think the Fed may be letting the bond market do its job for them to steep the yield curve,” she said. “They keep short rates very short and are ready to steep the yield curve. While we think stocks are a bit expensive to value, they are still attractive in our work and we will continue to catch up. ” them to weakness. “
Disclosure: Laffer Tengler Investments owns shares of JPMorgan, PNC Financial and Goldman Sachs.
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