Wall Street closes at a record for the first time since end of January
A battle is raging in the Halls of Congress between the banks and the crypto industry. The spark was a judgment by the White House’s Council of Economic Advisers, which recommended that stablecoins be allowed to pay interest to their holders. As a result of the Genius Act, passed almost a year ago, stablecoins are required to hold, as collateral, 100% reserves of US Treasury securities. However, the act banned stablecoins from paying interest. Shortly after the act passed, the crypto industry began pressing Congress to allow interest payments to stablecoin holders. Doing so would effectively make them a direct competitor to banks for checking and savings accounts.
Thus, the banks, especially the smaller and mid-sized regional banks that don’t offer crypto services, could see a drain on deposits without an uptick in crypto business. Bear in mind that the assets banks buy and the loans they make require deposits to fund them. Losing deposits to stablecoins could sharply curtail their business. The President is generally pro-crypto and was a big supporter of the Genius Act. The question, however, that will come up for a vote this spring or summer, is whether the banking lobby will be able to persuade politicians not to allow direct competition via interest payments on stablecoins.
The graph below shows that the Invesco KBW Bank ETF (NASDAQ:KBWB) has decently outperformed the iShares Regional Bank ETF (NYSE:IAT) since 2025. If interest on stablecoins is allowed by Congress, we suspect the performance gap will further widen. Until there is more clarity, prioritizing larger banks over smaller ones seems like an appropriate allocation decision.
Avis Leads Transportation Stocks
Avis Budget Group (NASDAQ:CAR) was up an astonishing 64% last week and a whopping 200% over the last month. A massive short squeeze is deemed the impetus behind its outsized move. Its 3.6% weighting in the transportation sector (XTN), coupled with its massive surge, helped the sector become overbought. However, the other top ten holdings are also overbought despite the negative impact that higher fuel prices will have on many of the companies. We share this in the second graphic.
As we share in the first graphic, technology continues to move from being the most oversold sector to one of the most overbought. It certainly outperformed the market last week in the relief rally. Despite oil prices remaining stubbornly around $100 a barrel, the energy sector has fallen from extremely overbought to fair value. As we noted a week or two ago, its incredibly high absolute and relative scores (>.85) were going to be very difficult to sustain. Over the last five trading days, technology stocks rose by over 4%, while energy stocks fell by over 4%. Extreme scores using this analysis, coupled with a relief rally on the Iranian conflict, were the culprits.
Last week’s price action provides guidance for which sectors might lead the way if the market continues higher. Conversely, if oil prices take another leg up, energy stocks, now at fair value, may be in a better position to lead the market once again.
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