Banks report earnings in the coming week and investors have a lot to sort through. Guidance on all of the incredibly negative aspects of current fundamentals, namely loan loss provisions, will be key. 

Some Catch-Up on Banks:

Friday, bank stocks were rallying, with the Invesco KBW Bank ETF KBWB up 3% by midday. That fund is comprised of roughly 70% regional banks and about 30% widely followed large caps.

It’s down about 30% from its June 8 level, a bear market. June 8 was the fund’s high off of the March 23 low for the broader market. The yield curve has compressed, with the spread between the 10-Year Treasury and 2-Year Treasury moving to around 45 basis points from north of 60 in mid-June. Banks borrow short and lend long, so a lower spread equals lower profitability. Regional banks, more sensitive to the yield curve and less diversified businesses, may see a harsher shock to earnings than larger banks may see. The yield curve compression has come with a broader risk-off move in financial markets, which has seen money driven into growth stocks, not value, and into safe bonds since mid-June. 

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