Invesco KBW Regional Banking ETF

KBWR

Market cap $48.5M

The first rate cut of the year gives investors the opportunity to position their portfolios to capture future upside in certain sectors, should further cuts occur. History has an uncanny ability to repeat itself, and it's telling us that we should target the financial sector.

US banks' net interest margins are poised to expand, but higher-for-longer interest rates and uncertainty created by tariffs will push credit costs higher and limit earnings growth in 2025. Banks' earnings should remain healthy through the first half of the year, buoyed by continued margin expansion, steady loan growth and benign credit quality.

KBWR is currently comprised of 50 U.S. stocks whose companies are primarily engaged in the regional banking industry, as determined by an Index Committee. KBWR primarily holds small-caps, while its counterpart, KBWB, handles the larger banks. Unfortunately for KBWR shareholders, it's those larger banks that have substantially outperformed over the last 14 years. A possible reason is that small commercial banks have a much higher loan-to-deposit ratio. After a brief reprieve in 2021-2022, the average ratio is back up above 80%.

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Trump's win and the Fed's latest rate cut fuel the best week of 2024 for U.S. stocks. We have highlighted five ETFs from different areas that were the leaders last week.

Banks have been pushing all year to loosen capital requirements and are also expected to benefit from potential tax cuts.

Small-cap stocks have been in the limelight amid the market rotation. Many ETFs in the space are hitting new 52-week highs.

The US economy expanded at a faster-than-expected pace in the second quarter of 2024. Small-cap stocks generally lead the way higher on improving American economy.

Invesco KBW Regional Banking ETF KBWR is probably on the radar for investors seeking momentum. The fund just hit a 52-week high and moved up 46.47% from its 52-week low price of $39.9/share.

KBWR, QQQS, SVAL, EES and SBIO are included in this Analyst Blog.