Regional Bank Stocks Banking on Additional Stimulus

Although regional banking stocks have underperformed the S&P 500 by around 30% year to date, the group has steamed ahead of the large-cap index by 18% in the past month as investors bet on a Biden election victory leading to higher levels of stimulus spending. If the Democrats win Tuesday and take control of Congress, fiscal spending will likely ramp up further to help reboot the floundering COVID-19 economy – potentially benefiting banks with a domestic focus.

Key Takeaways

  • Regional banking stocks have outpaced the S&P 500 by 18% over the past month as investors bet on higher stimulus spending under a Biden administration.
  • Huntington Bancshares Incorporated (HBAN) stock broke above a 10-month downtrend line and the 200-day simple moving average (SMA) in October before successfully retesting and defending the breakout level.
  • Bulls pounced on a "buy the dip" opportunity in SVB Financial Group (SIVB) when the price retraced to the closely watched pre-COVID February high.

While the former vice president has not committed to a specific stimulus amount, his website calls for more direct payments, additional money for small business, student loan relief, introducing emergency paid sick leave for all, and boosting unemployment benefits. "There is this notion that the fiscal stimulus will overwhelm any tax implications that a blue wave might bring," Dan Cole, co-manager of the Columbia Small Cap Growth Fund, told The Wall Street Journal.

Below, we take a closer look at two prominent regional banking stocks and turn to the charts to identify important technical levels worth watching this week.

Huntington Bancshares Incorporated (HBAN)

Headquartered in Columbus, Ohio, Huntington Bancshares provides consumer, small business, commercial, asset management, brokerage, trust, and insurance services to customers across eight Midwestern states. The bank reported third quarter adjusted earnings of 27 cents per share, ahead of the 25-cent figure analysts had expected thanks to higher net interest income. However, the bottom line contracted 21% year over year due to increased credit provisions. Looking ahead, Huntington's mortgage business should continue to provide support amid the current housing market boom. As of Nov. 2, 2020, the company has a $10.62 billion market capitalization, offers an attractive 5.75% dividend yield, and is trading 13.85% higher over the past month.

Huntington shares broke above a 10-month downtrend line and the 200-day SMA in October before successfully retesting and defending the breakout level last week. Furthermore, the 50-day SMA continues to converge toward the 200-day SMA and may form a golden cross buy signal later this month. Active traders who enter here should look for an initial move to the early June swing high at $11.68, followed by a possible run to significant overhead resistance at $12.35. Protect capital with a stop-loss order placed underneath Thursday's low at $9.66.

Chart depicting the share price of Huntington Bancshares Incorporated (HBAN)

The golden cross is a candlestick pattern that is a bullish signal in which a relatively short-term moving average crosses above a long-term moving average. It indicates a potential bull market on the horizon and is reinforced by high trading volumes.

SVB Financial Group (SIVB)

SVB Financial operates as a diversified financial services company. It provides various banking and financial products and services through four segments: Global Commercial Bank, SVB Private Bank, SVB Capital, and SVB Leerink. The $15.06 billion Santa Clara, California-based bank posted third quarter earnings of $8.47 per share on revenues of $1.08 billion, with the top and bottom line growing 32% and 64.5% from a year earlier due to rising loan and deposit balances. Although classified as a regional bank, the company has operations in the United Kingdom, Israel, China, and India to help diversify risk globally. Trading at $290.70, SVB stock has returned over 20% in the past month and 15.8% on the year as of Nov. 2, 2020.

The stock has trended steadily higher since bottoming out in mid-March. Bulls pounced on a "buy the dip" opportunity last week when price retraced to the closely watched pre-COVID February high that now acts as a crucial support area. Those who take a long position at these levels should consider setting a take-profit order near key multi-year resistance at $330 while limiting downside risk with a stop placed below the rising 50-day SMA.

Chart depicting the share price of SVB Financial Group (SIVB)

long position – also known as simply "long" – is the buying of a stock, commodity, or currency with the expectation that it will rise in value. Holding a long position is a bullish view.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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