ETFs that buy bank stocks are under pressure, lagging U.S. equities market

By Christine Idzelis

Bank of America was among the S&P 500's worst-performing stocks on Tuesday

Exchange-traded funds that hold bank stocks were under pressure Tuesday, lagging the broader U.S. equities market.

The Invesco KBW Bank ETF KBWB closed 1.6% lower, while the SPDR S&P Bank ETF KBE dropped 1.3% and the SPDR S&P Regional Banking ETF KRE fell 1.3%. All three funds suffered bigger losses than the S&P 500 index's modest 0.2% decline, with the SPDR S&P Bank ETF falling a fifth straight day in its longest losing streak since October, according to Dow Jones Market Data.

Bank stocks declined as interest rates in the bond market continued to climb and investors assessed first-quarter earnings released Tuesday by Bank of America Corp. (BAC), Morgan Stanley (MS) and Bank of New York Mellon Corp. (BK). Other major Wall Street banks reported their latest quarterly results earlier this month, including Goldman Sachs Group Inc. (GS), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC).

"The first-quarter U.S. earnings season has kicked off with mixed results from several of America's largest banks," Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, said in a note Tuesday. "While Citigroup and Goldman Sachs reported higher-than-expected earnings, both JPMorgan Chase and Wells Fargo unveiled lower-than-forecast net interest income."

Net interest income is the difference between what a bank can charge on loans and what it pays customers as it seeks to attract their deposits.

Shares of the SPDR S&P Bank ETF finished Tuesday down 8.6% so far in April, while the Invesco KBW Bank ETF has slid 7.6% this month, FactSet data show. The SPDR S&P Regional Banking ETF has slumped 9% in April,

By contrast, the S&P 500 is down 3.9% this month through Tuesday.

Shares of Morgan Stanley closed 2.5% higher on Tuesday, after the bank beat earnings estimates.

But Bank of America's stock sank 3.5% Tuesday despite the bank's first-quarter results topping analyst expectations. Moody's Investors Service cited a rise in loan-loss provisions at the bank.

Meanwhile, shares of Bank of New York Mellon fell 2% Tuesday, even as its earnings results for the first quarter also beat Wall Street's forecasts.

U.S. stocks ended Tuesday mostly lower, with the Dow Jones Industrial Average DJIA up 0.2% while the Nasdaq Composite COMP fell 0.1%, according to FactSet data. The S&P 500 SPX ended down 0.2%, with Bank of America among the index's worst-performing stocks on Tuesday.

In the bond market, Treasury yields extended their climb.

The rate on the 10-year Treasury note BX:TMUBMUSD10Y rose to 4.657% on Tuesday, the highest level since Nov. 6 based on 3 p.m. Eastern time yields, according to Dow Jones Market Data.

-Christine Idzelis

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04-16-24 1638ET

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