Regional banks, including NYSEARCA:KRE and IAT, are exhibiting notable buyable weakness despite prevailing concerns in the sector. This viewpoint was expressed by Jeff Degraaf, the Chairman and CEO of Renaissance Macro Research, in a recent CNBC interview.
Degraaf conveyed that while there are episodic and idiosyncratic concerns in the regional banks sector, the group as a whole remains oversold.
Specifically addressing the breakout observed in regional banks, Degraaf cautioned that it could potentially be a bull trap, but also highlighted the possibility of it proving otherwise.
He also pointed out an interesting dichotomy between the behavior of the equity and credit markets within the banking sector. While equity markets are exhibiting apprehension, the credit default swaps and credit spreads remain relatively nonchalant, with the latter at their lowest in a year, even below the levels during the Silicon Valley Bank episode. Degraaf emphasized that there seems to be a disconnect between the two, indicating an overreaction by the equity markets to concerns that are likely not systemic in nature.
Shedding light on recent trends, the S&P Regional Banking ETF (KRE) has experienced a more than 6% surge over the past five days and a 5.22% increment in the past six months.
In conclusion, Degraaf opined that despite the prevailing unease, regional banks (KRE) are positioned favorably at the moment.