EB Daily Market Report - Thursday, October 16, 2025
Resiliency is the first word that comes to mind for me today. Our major indices are mostly higher with the aggressive NASDAQ 100 ($NDX, +0.83%) leading the charge. In recent sessions, it's been small caps (IWM, -0.19%) leading the way and breaking to new all-time highs. They were powered, in part, by a surging regional banking group (KRE, -3.11%), which had gained nearly 6% on Monday and Tuesday alone, the group's largest 2-day gain since just after President Trump's November election win. That surge was mostly due to the expectations that a Trump presidency would lead to less regulation for smaller banks and increased merger & acquisition activity.
Monday and Tuesday's gains were mostly attributable to an increasingly dovish Fed. However, that luster wore off quickly as the KRE was trounced in Wednesday's session and those losses only accelerated this morning. The action the past two days has been somewhat confounding as most interest-rate sensitive areas have abruptly turned lower, despite the likelihood of two more rate cuts by year end and talk of more rate cuts in 2026. That should increase net interest margins for smaller banks and also increase merger activity as bank assets become more attractive with short-term rates falling.
But I don't like to argue with price action, so on the KRE, in particular, I'd keep a very close eye on Friday's close of 60.19. We've already seen an intraday drop below that level, so a reversal at this key price support level could mark an important bottom. However, renewed afternoon selling and violation of this support level should be viewed bearishly.....until the KRE can begin to reverse its bearish technical conditions.
KRE remains in a clear long-term uptrend, but short-term action warrants tight stops for those who trade shorter-term.
I'm spending a lot of time discussing this group today, because it's an area that I have favored throughout 2025, with expectations of rate cuts on the horizon. Now that the rate cuts have started and appear likely to continue, I've very surprised by the market's reaction in this space. It's also noteworthy that the KRE is a widely-diversified ETF, with no individual regional banking stock representing more than roughly 2% of the entire ETF. So the current drop is not due to any particular stock. Rather, it's Wall Street currently selling the industry.
It's also notable that financials (XLF, -0.85%) is the only sector in negative territory today.
Trucking ($DJUSTK, +5.38%) is getting a big lift from a strong quarterly earnings report from JB Hunt Transport Services (JBHT, +19.76%). JBHT has been languishing for a year and half, but it's quickly making up ground with its quarterly results and Wall Street's reaction.
As far as our major indices go, I believe Friday's close represents an important short-term support level. Should we see weakness ahead and we fail to hold that key support, I'd look for a further spike in the Volatility Index ($VIX, +0.10%), which stubbornly remains above 20 - not good. If that VIX spike occurs along with the loss of Friday's closing support, then I'd begin to look for 20-week EMA tests on our major indices. That could result in a 5-6% decline.
Just keeping it real.
Happy trading!
Tom