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Bank ETF (KBWB) Hits New 52-Week High

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Investors seeking momentum may have Invesco KBW Bank ETF (KBWB - Free Report) on radar now. The fund recently hit a new 52-week high. Shares of KBWB are up approximately 84.7% from their 52-week low of $37.90/share.

But could there be more gains ahead for this ETF? Let’s take a look at the fund and the near-term outlook to get a better idea of where it might be headed.

KBWB In Focus

The underlying KBW Nasdaq Bank index is a modified-market capitalization-weighted index that seeks to reflect the performance of companies that do business as banks or thrifts that are publicly-traded in the United States. The fund charges 35 bps in fees.

Why The Move?

The yield curve steepened materially. As of Oct 5, spread between the yield on the benchmark U.S. treasury and the yield on the two-year treasury was 145 basis points. Notably, this spread was 124 bps at the start of September.

The biggest winner of the steepening yield curve is the banking sector. Bargain hunting added some gains. As banks seek to borrow money at short-term rates and lend at long-term rates, a steepening yield curve earns more on lending and pay less on deposits, thereby leading to a wider spread. This expands net margins and increase banks’ profits.

Moreover, big banks raised concerns in the pandemic-ridden 2020 about severe economic downturns and worsening credit quality. With oil prices suffering that time, there was the likelihood of a rise in delinquency rates from the energy companies. With the situation in the oil patch improving now and bond yields rising (with Fed taper talks), banks now have every reason to cheer..

More Gains Ahead?

The fund has a positive weighted alpha of 60.50. So, there is a decent outlook ahead for those who want to ride this surging ETF a shade further.

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