Chart of the week - bank stock break out

Global Banking Stocks: The banking sector has been counted out and dismissed by many investors — partly due to thematic narratives e.g. the rise of crypto/defi (decentralized finance), booming VC investment into FinTech, and social/political/regulatory crackdowns on the banking sector following the fallout from the global financial crisis. And to be fair, global banks have been a big fat range trade since 2008.

But something is brewing in the banking sector. The global bank stock index is in the process of undertaking what may well be a major breakout. Aside from the interesting price action in the index, if we look across countries the strength has been widespread with 90% of countries’ bank stock indexes tracking above their respective 200-day moving average (by contrast, just over 50% of the S&P500 is tracking *below* their 200dma).

Supporting the bullish technicals is an attractive valuation setup (global banks are cheap vs history, cheap vs the rest of the market, and global ex-US banks are cheap vs US banks). Also of note is the macro outlook: the banking sector is here to stay, certainly at least in the immediate term, and will benefit from higher yields, strong housing markets, and recovering real activity as reopening resumes.

Key point: global banking stocks are breaking out.