Don’t catch a falling knife amid bank runs

The SPDR S&P Bank ETF (KBE) stock price plunged hard on Thursday as challenges in the banking industry escalated. KBE shares dropped to a low of $42.64, which was the lowest level since July 14 last year. It is one of the worst-performing sector indices this year, having slipped by over 16% from its year-to-date high.

SVB and Silvergate Capital crisis

The SPDR S&P Bank ETF, popularly known as KBE, is one of the biggest bank ETFs in the world, with over $1.5 billion in assets. It holds some of the biggest banks in the United States. According to SeekingAlpha, its biggest holdings are companies like SVB Financial, Voya Financial, Citigroup, and Bank of New York Mellon.

The KBE ETF plunged hard as challenges in the banking sector emerged. As I wrote in this article, Silvergate Capital, was on the brisk of collapse. This week, the company confirmed that it was indeed liquidating its business. 

Silvergate seems to be the tip of the iceberg in the financial industry. On Thursday, SVB stock price crashed by more than 61% after the company announced that it was considering raising capital. This announcement led to a major bank run, with several venture capital firms pulling their deposits. It was a remarkable collapse considering that Jim Cramer recently recommended investing in the company a few weeks ago.

Therefore, there are shivers in the financial market, which could lead to a major sell-off in banks. Indeed, most bank stocks plunged hard on Thursday. For example, Charles Schwab stock retreated by about 7% while First Republic tumbled by 17%. Signature Bank, which has access to the crypto industry, fell by 12%.

Is it safe to buy the KBE ETF dip?

So, is it safe to buy the KBE ETF dip? At this stage, it is hard to recommend investing in banks considering how volatile the bond market is. We recently saw the 10-year bond yield cross 4% for the first time in months and the 2-year rise to the highest level since 2007. Therefore, there is a lot of rotation going on as depositors seek better yields. 

At the same time, it is always advisable not to catch a falling knife and fight the Fed. With negative sentiment still flying around, we will likely see the ETF continue falling in the coming days. From a technical standpoint, the fund’s stock will likely drop to the next support at $41.25 followed by the next psychological level at $40.