Chart of the SPDR S&P Regional Banking ETF (KRE ) – Bank Stocks Still Reeling from Dovish Fed, Falling Yields – Source: TheTechnicals.com and TradingView

Major global banks, as well as smaller regional U.S. banks, continue to be pressured heavily in the aftermath of last week’s Federal Reserve decision. This is largely because the Fed was even more dovish last Wednesday than previously expected. The central bank unexpectedly lowered economic growth (GDP) expectations and called for no rate hikes in 2019. Since then, bank stocks have fallen sharply along with government bond yields.

Bank Stocks Pummeled by Low Interest Rate Expectations

A dovish Fed that’s reluctant to raise interest rates is often positive for the stock market as a whole. But banks are quite a different story. These institutions receive a major portion of their profits from interest. So they earn significantly less when there is a relatively low-interest rate environment. Also, a slowdown in economic growth generally places a drag on overall borrowing activity, which also hurts banks.

Regional Banking ETF (KRE) Chart

The chart above shows the SPDR S&P Regional Banking ETF, otherwise known as KRE. From the day before last week’s Fed announcement, KRE has dropped more than 9% (as of the market close on Tuesday, 3/26/2019). This is quite a lot for an ETF to move in the span of just a handful of trading days.

The full drop down to Monday’s low was more like 12.50%. But Tuesday saw a stabilization of plunging bond yields and an upturn in the overall stock market. These factors helped boost bank stocks slightly off their lows.

During the course of the recent fall in regional banks, KRE also plunged sharply below its 50-day moving average, lending even more of a bearish bias to this sub-sector. In addition, the ETF has traded well below its key 200-day moving average since September.

What May Happen Next for Bank Stocks?

Global and regional bank stocks could indeed rebound as an environment of lower interest rates for longer potentially becomes the norm. But worsening economic growth concerns will likely be a major factor that potentially extends the sell-off for these stocks.