Retirees are chasing the wrong part of AI

KEY TAKES

• Regional banks were the chase last week (KRE +3.8% for the week) while chip stocks (SOXX) lost 3.1% and gold (GLD) lost 4.0%.
• The biggest KRE day was Thursday, Oct 22 (+2.53%), the same day the SOX fell 6.7%.
• Jeff Brown on how to get a pre-IPO stake in a fast-growing AI startup starting with $50 (From Brownstone Research)

THE CHASE

Last week the bid left chips and gold and landed in regional banks after a run of Q3 beats. East West Bancorp (EWBC) gained 2.2% to $128.27 on Monday, Oct 20, on EPS of $2.76 versus $2.72 expected, a seventh straight beat and record revenue (PromtFinance, Oct 21). Mercantile Bank (MBWM) gained 2.7% that day on EPS of $1.42 versus $1.35, with a net interest margin of 3.73% versus 3.49% a year earlier (Investing.com, Oct 20). WesBanco (WSBC) gained 3.9% to $39.13 on Thursday, Oct 22 (Yahoo Finance). KRE went from $69.81 on Oct 16 to a Friday print of $72.46, up 3.8% for the week. A month before those prints, nearly every regional was down 7% to 10% (The Closing Print, Oct 12).

KRE was up three of five sessions. It dipped to $69.26 on Monday, Oct 19, then ended Tuesday and Wednesday both at $70.62. Thursday was the big day, up 2.53% to $72.41 on 18.5 million shares, ending 2 cents under the high of $72.43, while the SOX fell 6.7%, its worst day since June 23. Friday held, up 0.07%, and ended at $72.46. Broad financials (XLF) gained 0.68% for the week, so the chase was the regionals, not the whole bank group. Gold (GLD) went from $382.01 to $366.61.

KRE still has to prove it. The fund sits about 7.5% under its Aug 4 high of $78.35, and it trades at about 11.5x next-year earnings (11.52 per SSGA, Oct 22). The Q3 beats are already in Friday's print, so the next driver is rates. Deposit costs rise if yields push higher, after the September Fed hike, with the 10-year near 5.24% (The Closing Print, Oct 12). The test is Monday's session.

Wrong if: KRE gives back Thursday's jump and ends back under $70.62 (Wednesday's print) before the Fed decision.

HEADLINE OF THE WEEK

“Bank OZK (OZK) Stock Price Jumps After Q3 Earnings Beat Concerns”

Yahoo Finance | Thu Oct 22, 7:17 AM ET

Bank OZK (OZK) jumped 4.2% to $48.09 even though net income fell about 9% and the margin slipped to 4.24% from 4.35%. Buyers paid for low-priced, profitable banks, not for a clean quarter, on the day money left chips.

ONE TO WATCH MONDAY

KRE is the name for Monday. Friday's print was $72.46, up 3.8% for the week. The catalyst is the 2-year Treasury note auction on Monday, Oct 26, at 1:00 PM ET, two days before the Fed decision on Wednesday, Oct 28, at 2:00 PM ET. Bank deposit costs move with rates. A hold above Thursday's print of $72.41 through the auction says buyers are staying in the banks. A slip under $70.62 says Thursday was a one-day trade.

WEEK AHEAD

The Fed decides Wednesday, Oct 28, at 2:00 PM ET. Microsoft and Alphabet report after the cash session the same day.

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Signal over noise. A Sunday read of Friday's print. Next cash session Monday Oct 26.