Retail traders are constantly bombarded with so many indicators that their screens often become cluttered with different studies and graphics, confusing what’s really going on. However, all indicators come from one source: the price movement of a stock or any other instrument, so understanding the source is key before anything else.
However, price action alone will not give investors many answers, at least by itself. When analyzing the price action of a stock or exchange-traded fund (ETF), individual assets should be taken in the context of other similar asset classes or instruments so that a broader trend can be revealed as a narrative. Today’s behavior among financial sector, bond, and energy sector prices could provide this type of narrative to investors.
Understand what price movement is in SPDR S&P Regional Banking Fund NYSEARCA:CRE For the recent rises in the broader S&P 500 it means the beginning, which then takes on a larger — and more pronounced — shape when viewed alongside recent fluctuations in the broader S&P 500. iShares 20+ Year Treasure Bond ETF Nasdaq: TLT. Finally, there is another layer of context in the inflation-versus-stagnation camps resulting from these relationships, which is the inflation-versus-stagnation layer American Oil Fund NYSEARCA: Use.
SPDR S&P Regional Banking Fund: Divergence during the easing cycle
With the Federal Reserve cutting interest rates by 0.25 percentage points and signaling a slowdown in the pace of cuts in 2025, interest rate sensitive asset classes could begin to show upward price movement as the market anticipates the broader economic impacts. This is where the difference between the recent highs of the S&P 500 and the regional banking ETF gets interesting.
SPDR S&P Regional Banking ETF Today
SPDR S&P Regional Banking Fund
(As of 12/20/2024 at 05:31 PM ET)
- 52 week range
- $45.46
▼
$70.25
- Dividend yield
- 2.42%
- Assets under management
- $5.22 billion
Why doesn’t an interest rate sensitive industry like regional banks thrive on news of the ongoing easing cycle and interest rate cuts? More importantly, why are other financial sector stocks performing so much better than these small banks? The answer to this question is two-fold, and here it goes.
First, like banks Goldman Sachs Group Inc New York Stock Exchange: A and JPMorgan Chase & Co New York Stock Exchange: JPM They show better price action than these regional banks because they are not as exposed to the local business cycle. When rates fall, these banks can take advantage of market volatility in their trading divisions and increase deal making in investment banking.
Regional banks, on the other hand, rely more on commercial loans and local mortgages, two markets that are now going through what we might call a downturn.
iShares 20+ Year Treasuries Fund: Bonds reject Fed’s decision to cut them
When interest rates fall, bond yields also fall. However, currently, bond prices are retreating from their recent highs (yields are rising), which can be seen as a challenging stance against the Fed’s decision to cut interest rates.
iShares 20+ Year Treasury Bond ETF Today
iShares 20+ Year Treasure Bond ETF
(As of 12/20/2024 at 05:45 PM ET)
- 52 week range
- $87.34
▼
$101.64
- Dividend yield
- 3.85%
- Assets under management
- $57.05 billion
The implication is that if the Fed continues to ease, inflation may return and drag business (domestic activity) down due to the inability to pass on costs to consumers. This may be why regional banks are moving away from the broader markets and why bonds are falling at the moment.
Considering that some inflation-friendly deals have performed well since the summit in bonds and regional banks, e.g SPDR Gold Stocks NYSEARCA:GLDInvestors can safely start assuming that today’s price action ahead of other Fed decisions is the market’s way of saying they expect inflation to return again.
Paul Tudor Jones and Stanley Druckenmiller They were bold enough to make this opinion public. In recent interviews, they reiterated their economic views and agreed on a common path back to inflation. And so far they have been right, as inflation trades are starting to pay off.
US Oil Fund: The dominoes are lining up for Warren Buffett
The final layer to confirm this potential inflation trade has to come through commodities, this time oil prices. As of December 18, 2024, the price of oil has risen more than 1.6% to exceed $70.50 per barrel. Given that this rally occurred on the day of the Fed’s decision to cut interest rates, investors can see how this entire mix stacks up to inflation pressures.
American Oil Fund Today
American Oil Fund
(As of 12/20/2024 at 05:40 PM ET)
- 52 week range
- $65.48
▼
$83.41
- Dividend yield
- 0.00%
- Assets under management
- $1.07 billion
Again, this may be what Warren Buffett expected when he bought up to 29% of his shares Occidental Petroleum Company New York Stock Exchange: Oxya direct bullish bet on future oil prices. Another buyer looking for higher oil prices also came in the form of an institutional investor.
Those at FFG Partners have decided to boost their holdings in the US Oil Fund by 2.2% from December 2024, bringing their net position to $5.3 million today, another bullish measure for investors to consider going forward on this potential inflationary behavior from other markets. .
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