KRE ETF stock has doubled: is it safe to buy regional banks?

The SPDR S&P Regional Banking (KRE) ETF stock price continued its strong rally, reaching its highest level at $67.95, its highest swing since February 2022. It has soared by 100% from its lowest level last year when the regional banking crisis escalated.

Regional banks have bounced back

The KRE ETF is a leading fund with 143 companies and over $4.9 billion in assets under management. 

It is a top fund that holds companies like M+T Bank, Huntington Bancshares, Regions Financial, Truist, First Horizon, and Zions Bancorp. 

The fund came into the spotlight last year after a series of regional bank collapses like companies like Silicon Valley Bank (SVB), Signature Bank, and First Republic. These were some of the most notable bank collapses in the last decade.

Their collapses led to a substantial risk that other regional banks would also go bankrupt. A major risk was that most of these banks have substantial exposure in Commercial Real Estate (CRE), which has over $950 billion in maturities this year. 

Regional banks are more exposed to the CRE industry because many large companies like JPMorgan and Goldman Sachs have reduced their exposure. The distress in the real estate industry has not happened.

Additionally, there were concerns about their investments in government bonds, whose values dropped when interest rate surged. 

Read more: FDIC proposes new rules for regional banks to better prepare for a potential collapse

M&T Bank and other constituents have soared

A closer look at most companies in the KRE ETF have done well in the past few months. M&T Bank stock price has jumped to $215, up by over 106% from its lowest level in October last year as it continued to publish strong results. 

The most recent numbers showed that M&T Bank’s net income interest rose to $1.72 billion, up from $1.718 billion in the second quarter. 

Huntington Bancshares stock has soared in the past three consecutive weeks, reaching a high of $18. It has risen by 110% from its lowest point in 2023. Similarly, Regions Financial shares have jumped to $26.3, also higher than last year’s low of $13.1

Other top-performing companies in the ETF like Truist Financial, First Horizons, Zions Bancorp, and Bank OZK. 

Analysts believe that the KRE ETF is a fairly undervalued fund trading at a forward P/E ratio of 14, lower than the S&P 500 of 21. The price-to-cash flow multiple of 11.85 is also lower than the fund. 

These valuation metrics are mostly because of the lingering fear that regional banks may collapse again as the Federal Reserve cuts rates.

KRE ETF analysis

KRE chart by TradingView

The weekly chart shows that the SPDR S&P Regional Banking ETF has been in a strong bull run in the past few months.

KRE has formed an ascending channel shown in black. It has moved to the upper side of this channel.

The stock has moved above the key resistance level at $60, its highest level in July this year. It has also rallied above the key point at $64.15, its highest swing in August 2022.

KRE has formed a golden cross as the 50-day and 200-day Exponential Moving Averages (EMA) have formed a golden cross pattern. In most cases, this pattern usually leads to substantial gains. 

The MACD and the Relative Strength Index (RSI) have continued rising, which is a sign of strong momentum. It has also risen above the 23.6% retracement point.

The KRE ETF has formed a doji candlestick pattern. Therefore, while the stock has more upside going forward, there is a likelihood that it will pullback in the coming days and retest the support at $59.22.

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