Morning Notes — SVX Set for Technical Breakout

After ~3 months of consolidation, the S&P 500 Value Index (SVX) is set up for a technical breakout. The S&P 500 Financials Index (easier to follow as ETF symbol IYF) has already broken out with banks trading at ~1.4x Tangible Book Value vs. their long-term average of 2x TBV.  The economic backdrop could support a return to historical peak valuations of 3x TBV. Value managers are only a tiny subset of long-only managers.  Sell-side analysts that follow value groups like banks typically prefer the lowest multiple stocks in their group.  These are the large cap, money center banks that generalist portfolio managers see when they rotate to value.  The large cap banks will work as fundamentals improve, but the regional banks that already have loan growth, superior service models and FinTech-like technology solutions are taking share and growing TBV at a much faster pace.