Bank Stocks & Bond Yields

This “peacock” chart shows the performance of the banking industries in the Financials sector since August 27, 2010, the day before Fed Chairman Ben Bernanke first talked about another round of quantitative easing. Over this period, the S&P 500 is up 23.6%, while the Financials sector is up only 12.7%, ranking as the second worst of the 10 sectors. The banking industries have all underperformed: Diversified Banks (15.0%), Investment Banking (0.6%), Other Diversified Financial Services (4.4%), Regional Banks (13.3%), and Thrifts & Mortgage Finance (-11.0%).

The banks are good for something. The S&P 500 Bank Stock Index (BSI) has been highly correlated with the 10-year Treasury bond yield since 2008. The decline in the yield from a recent high of 3.59% to 3.11% this morning coincided with weakness in the BSI. The yield isn’t likely to move higher until the BSI starts doing so.