What Are the Bank Stocks Telling Us?

The KBW Bank Index comprises 24 of the largest banks in the US. The financial sector is of fundamental importance to the economy and also tends to lead the stock market. A healthy economy and stock market requires a healthy financial sector. The following chart, therefore, caught my eye. In 1999, banking stocks started making a series of lower highs ahead of the stock market topping out the following year. The same trend occurred in 2007 before the financial collapse of 2008 and the same trend is taking place today. If the bank stocks start rolling over here, the broader stock market will soon follow. This is not a healthy development and investors should be on red alert for a potential break lower in $BKX.

 
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