I keep getting asked what should work when the Fed hikes. I said banks. I wasn’t alone. Zacks, Simply Wall Street, the usual. Higher lending rates, sticky deposit rates, fatter spread. The story is clean.
Then XLF had a rough Fed day, gapped up, closed red. Qs shook it off. Banks lagged.
So I checked the first hike after a long pause. Five of those. XLF negative the following month all five times. p-value 0.01. Small sample. Still 5 for 5. Dec 2015 was down 12. Feb 2000 down 8. Most of the others around 3. BAC, JPM, WFC, C. Same idea.
The rest of the hikes in a cycle? Coin flip. No edge. It’s the first one.
That’s why I don’t trade the story. The story made sense. The tape didn’t.
Best bank tape in the data is a flat curve. Makes sense after the fact. They were fine while nothing was happening. Then they started to roll.
Is the underperformance already in? I don’t know. Month isn’t over. Technically XLF is starting to look like a rounded top. GS got smoked, under the 50. JPM is holding up better.
Assumption was wrong. Now you’ve got a window. Doesn’t mean short it blind. Means you have a reason to look.
Free list: one idea a night, 252 a year. Pro is the book the night before. Have a good weekend. Get away from the screens.