Regionals Beat Largest Banks as Stock Signal: Chart of the Day

Regional banks have become a more telling indicator of the U.S. stock market’s prospects than the country’s largest lenders, according to Donald Coxe, a strategy adviser to Bank of Montreal’s securities unit.

As the CHART OF THE DAY shows, the KBW Regional Bank Index has lagged behind the Standard & Poor’s 500 Index most of the time since March 2009, when the latter gauge started rising from a 12-year low. The index of 50 lenders has also failed to keep pace since the first week of June, when stocks began their current rally.

This performance contrasts with the KBW Bank Index, consisting of Bank of America Corp. (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and 20 more of the biggest U.S. banks. The gauge, included in the chart, has gained more than the S&P 500 since March 2009 and in the past two months.

“The tide is turning away from those mega-institutions,” Coxe wrote in an Aug. 3 report. The shift results from “badly behaved bankers” who relied on the government for help during the 2008 financial crisis and fought efforts to rein in their business afterward, the report said.

Coxe, the Chicago-based chairman of Coxe Advisors LLP, wrote that he has looked at bank stocks as a market gauge for about four decades. Rallies are often suspect unless banks have bigger gains than benchmark indexes, the report said.

Smaller lenders have become a more reliable indicator, in his view, than what he called the B5 -- “the big, bad bonused bailout banks.”

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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