Huge abnormal returns of the bank stock ETFs

2015-06-09 12:08:32

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Exchange traded funds tracking the performance of the banking sector stocks have grown 7% above S&P 500 in June (considering their beta values):

The best performing non-leveraged fund is the SPDR S&P Regional Banking ETF (KRE) tracking the S&P Regional Banks Select Industry Index:

What is the main reason for this trend? The government reported 280,000 new jobs were created in May, compared to the expectations of about 225,000. Furthermore, average hourly earnings were up 0.3%, compared to the expectations of 0.2%. This information makes raising the interest rates by Fed more probable. The perceived chance of a 25 basis point rate raise in September is now exceeding 50% when we look at the Fed Funds futures pricing. Higher interest rates should lead to banks' higher profits.


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