State Of The Market In 7 Charts – November 2016 Edition

SPDR KBW Bank (ETF) (NYSEARCA:KBE)

The banks! There has been a great deal of commotion surrounding the financial services industry in 2016.  Scandals have plagued Wells Fargo, European banks have fought disparate circumstances, and regulatory woes are an ever-present outcropping.  Nevertheless, investors seemed heartened for this industry after the Trump win, which sent SPDR KBW Bank (ETF) (NYSEARCA:KBE) soaring.

Many chartists have pointed out that the banks are slowly returning to share prices not seen since the 2008 financial crisis.  That boost of confidence is attractive in the near-term.  However, this is another area that should be viewed with caution for new money after a big rip higher.  Chasing a knee-jerk reaction can be a dangerous circumstance without proper framing for risk.

CBOE Interest Rate 10 Year T Note (INDEXCBOE:TNX)

One of the major catalysts for strength in financial stocks is the rip higher in Treasury bond yields.  The 10-Year Treasury Bond has now retraced nearly its entire move for the year and now sits just above 2.1%.  This trend of rising rates started four months ago when fixed-income became over-loved and over-bought.

This move has been magnified by the results of the election and the possibilities of additional rate hikes by the Federal Reserve.  Consider that this index is now more than 50% off its lows and you can start to get a feel for how far it has come in such a short period.

It’s not just bonds that have been affected by this trend either.  Interest-rate sensitive asset classes like utility stocks, REITs, and preferred stocks have seen their prices decline significantly off the highs as well.  The chart below illustrates those trends by their ETF equivalents.

Many of these sectors are also highly represented in low volatility stock indices, which have significantly underperformed the broad market over the last several weeks.

iShares MSCI EAFE Index Fund (ETF) (NYSEARCA:EFA)

International stocks have truly been a mixed bag.  EAFE represents a broad swath of emerging and developed nations.  Latin America and other emerging countries have been selling off dramatically, while Europe has mostly held it together.  This dichotomous relationship has created some churning action in broad-based international funds like iShares MSCI EAFE Index Fund (ETF) (NYSEARCA:EFA).

International stocks are mostly flat on a year-to-date basis and will likely experience continued volatility in the near-term. The impact of currency fluctuations and other factors will contribute to a tug-of-war effect within many of these diversified funds. Nevertheless, it’s worth pointing out that on a relative basis these stocks are considered undervalued versus their U.S. peers.