Stress Relieved?

Financial stress is fading, just don't tell regional banks

The St. Louis Financial Stress Index is back to where it was before most of the country had ever heard of Silicon Valley Bank. The Regional Bank ETF (KRE) not only hasn’t recovered, it made a new low today.

Why This Matters: In periods of financial stress, regional banks tend to come under pressure (for comparison’s sake, we’ve inverted the financial stress index in the chart above, so when the blue line is falling financial stress is building). When stress ebbs, regional banks typically recover. Right now, stress appears to be fading, but regional banks are not responding. After the COVID crisis, stress ebbed but regional banks were slower to recover - but they were at least recovering and not making new lows. This time, the action from the regional banks is diverging from this indicator of financial stress.

Time will tell which is correct, but for now, mixed signals make for messy markets.