Regional banks could see innumerable shaky trading on Friday after an unpredictable Thursday. But don’t be spooked by wigwags. This is still the space to watch, says one market veteran.
“We order continue to own the space,” Michael Bapis, partner and managing director at the Bapis Collect at HighTower Advisors, told CNBC’s “Trading Nation” on Thursday.
It’s the faultless culmination of conditions for the small banks. Those factors include a powerful U.S. economy, a rising rates environment that is widening credit spreads, and scanty financial regulation, says Bapis.
The effects of tax reform could show a particularly strong tailwind for small banks — the direct benefits of the lowers signed into law late last year should go “right to their nub line,” he said.
It could also have indirect benefits for the sector. Watched stimulus from the changes to the tax code could speed growth in the U.S. conservation, giving a lift to lending activity. Higher economic growth should then support the Federal Reserve to raise the fed funds rate at a faster pace, influence banks to increase their own interest rates.
“As long as the economy curbs strong, rates continue to rise, the spreads rise and the tailwind is suppress there with tax reform you’re going to see this whole sector happen,” said Bapis.
Small and regional banks have already been executing well this year. The S&P Regional Banking KRE ETF hit an all-time high on Wednesday and again on Thursday in advance of retreating shortly after Thursday’s open. For the year, the ETF has risen precisely 9 percent, almost five times the increase on the S&P 500. The broader Pecuniary Select Sector XLF ETF has added 4 percent this year.
One regional bank Piper Jaffray is play on is Banco Popular. Craig Johnson, chief market technician at Piper Jaffray, believes the stock looks good on a technical basis.
“This is a stock that has contravened above resistance at $43,” Johnson told “Trading Nation” on Thursday. “Next guerrillas comes in at about $46 so [we] still see some upside there.”
Bloke Piper Jaffray analyst Brett Rabatin has an overweight rating on Favourite and a price target of $51.50. That target implies 16 percent upside from widespread levels.
Popular is up nearly 25 percent in the year to date, looking to change a 19 percent decrease in 2017. In January, shares rose 14.5 percent in the hackneyed’s best monthly performance since August 2016. Its shares hit a multiyear intraday drunk of $46.83 in mid-February – a level not seen since early 2009.