Now May Be the Time to Bail on Bank Stocks

Bank stocks are the most likely to underperform in March, historically

Managing Editor
Mar 5, 2024 at 12:56 PM
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Subscribers to Chart of the Week received this commentary on Sunday, March 3.

It’s been one year since the finance sector crumbled in the wake of the Silicon Valley Bank (SVB) and First Republic Bank (FRCB) collapse. It was the second- and third-largest bank collapse in history, so bad, that the Federal Reserve needed to step in to prevent the collapse from morphing into a full-blown systemic bank crisis a la 2008. Now, articles are popping up titled ‘Wall Street is worried about another regional banking crises,’ and ‘The ghosts of last year's regional bank collapse still haunt the banking sector.’ Is there merit to such headlines, or is it click-bait handwringing?

In early February, the Fed removed verbiage in a policy statement that classified the U.S. banking system as "sound and resilient," a term used since last year to assuage any investor panic. This comes after New York Community Bancorp (NYCB) on Jan. 31 shed 37% and lost 11% the next day, when the regional bank reported a surprise quarterly loss and slashed its dividend. Fast forward to Friday, and NYCB took another sizable hit, shedding xx after downwardly revising that fourth-quarter loss to $2.7 billion, more than 10 times what it previously stated on Jan. 31. The regional bank also announced a CEO change, and the disclosure of ”material weaknesses” in its accounting.

In response, regional banks were down across the board on Friday. To make matters worse, seasonal data for March points to more weakness from the sector. Per a list curated by Senior Quantitative Analyst Rocky White, below are the 25 worst-performing stocks on the S&P 500 Index (SPX) for March in the last decade. You don’t need to be a chartered market technician to see the banking trend jumping off the page. Citizens Financial Group (CFG) is the worst of the worst, and one of 11 bank stocks on the list of laggards, averaging a -10.8% return in March with a slim win rate of only 22% in the last 10 years.


In addition to regional names like Fifth Third Bancorp (FITB) and US Bancorp (USB), there’s also an alarming number of heavyweights on the list; blue-chip banker Goldman Sachs (GS), Wells Fargo (WFC), and Citigroup (C). With such an obvious presence, the first question that came to mind was -- are these numbers heavily skewed by the bank sector selloff of 2023?

And that’s where some context is needed. Senior Market Strategist Chris Prybal offered up the table below of the broader monthly performance of the Financial Select Sector SPDR Fund (XLF), dating back to 2015. It wasn’t just a historically ugly March 2023 that is weighing on White’s tables and skewing the names; the XLF underperformed the SPDR S&P 500 ETF Trust (SPY) every March from 2017 to 2020. With that in mind, maybe this is the month to fade the finance stocks.


Put traders may be ahead of the curve. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), XLF sports a 10-day put/call volume ratio of 2.76, which ranks in the 64th percentile of its annual range. So not only do puts nearly triple the number of calls traded in the last two weeks, but the high percentile indicates the rate of put buying relative to call buying has been quicker than usual. Given the bank ETF’s 7% 2024 gain and 33% pop since a March 24 12-month low of $30, those options traders are either betting on a bank sector pullback or using puts as a hedge against any additional upside.

If you’re buying into another seasonal downtrend for the bank sector, consider this; White also compiles a table of ETF performance in March going back 10 years. The XLF averages a March loss of 2.9% with a monthly win rate of only 30%, the fourth-worst rate of the ETFs tracked.


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