Big banks dominated headlines this week as they reported second quarter earnings.
JPMorgan (NYSE: JPM) kicked off earnings season on Tuesday, posting earnings per share of $3.78 on revenue of $31.4 billion while analyst had expected earnings of $3.21 per share on revenue of $29.9 billion.
“Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve,” JPMorgan CEO Jamie Dimon said in the earnings release.
Goldman Sachs (NYSE: GS) also delivered a beat on Tuesday, while Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC) posted better-than-expected results on Wednesday. Bank of America posted a beat on earnings per share, but fell shot of analysts’ estimates on revenue with CFO Paul Donofrio citing the “continued challenge of low interest rates.”
But with all eyes on big bank earnings, investors may have missed a decline in regional bank stocks.
The KRE SPDR S&P Regional Banking ETF has fallen 4% since the beginning of the month, falling 5% last week alone before leveling out this week.
This weakness, however, is giving investors an opportunity.
“I would be buying some of these financials on the weakness here,” said Piper Sandler senior technical research analyst, Craig Johnson.
Johnson argued that the recent falter in the sector shouldn’t be cause for concern.
“I’d call it shaken, but not stirred,” Johnson said. “This little shakeout is just that – a little shakeout.”
“From our perspective, as I look at this overall market here, I can see that as we’ve seen this sort of correction happening in 10 year bond yields, we’ve seen pressure happening for all these regional banks,” Johnson continued. “And what we basically have seen is just sort of a bit of a breakdown, but again, I think it’s still the right place to be is to be overweight the financial sector.”
Pointing to the ETF’s chart, Johnson noted that, “You’ll find really good support at the rising 200-day moving average, which is just below where we’re at.”
Blue Line Capital’s Bill Baruch is bullish on the sector as well, and added to his position in the KRE ETF on the weakness, selling “high growth names” to raise cash.
“Speaking of the high growth names, it’s been the yields, the precipitous drop in yields that has powered a lot of those in virtually, it’s hurt the banking sector, but the reality is, the banking sector, there’s a lot of activity. People are using credit and I think the second half is going to be terrific,” Baruch, the firm’s founder and President, said. “I think the KRE [and] the banking sector’s going to perform very well in the second half and I’m using this as a buying opportunity.”