Following the election, bank stocks were among the leaders in the “Trump Trade” rally. With promises of regulation rollbacks and a rejuvenated economy, banks were seemingly the place to be.

However, they stalled in March, lagged the market for months, and this week finally broke down below very important technical supports. The market was able to rally when banks were merely marking time, but now that the trends in banks are down, the game has changed for the worse.

To fully understand what is happening we have to start with the U.S. Treasury market. The benchmark 10-year yield also peaked in March and moved below support earlier this week (see Chart 1). At 2.06%, the market is trading where it was during the first day after the election results were tabulated. The entire gain has been lost and presumably so has the enthusiasm the bond market had for the new administration.

Chart 1

The question investors must ask is, what does the bond market know that the stock market may be missing? If the economy is picking up then interest rates should be rising, not falling.

Even more concerning is the shape of the yield curve. This is a plot of Treasury rates from short-term to long-term, and it is often used as a harbinger of economic change. To simplify the analysis, we usually just analyze the difference or spread between the two-year rate and the 10-year rate.

A flat yield curve where short- and long-term rates are close often signals a recessionary tone. The last time we saw such a curve was 2007 just ahead of the financial crisis. At that time, the curve was actually “inverted” with short rates above long rates.

In 2016, the curve started to get very flat again but not so flat to signal real economic problems. After the election, the yield curve also broke out to the upside, meaning it got steeper, as long-term rates started to climb faster than short-term rates. It was viewed as a positive for the economy.

It was even more positive for banks. Since they borrow money at short-term rates and lend it out at long-term rates, a bigger spread between the two meant they would make more money.

Therefore, it was no surprise to see this sector lead the market higher after the election.

This week, for the second time this year, the yield curve is back down to its lows from 2016. Again, it does not signal a pending recession, but it does speak to the bond market’s lack of confidence that the economy will actually catch fire.

The banks responded with a rather negative move as the SPDR S&P Bank exchange-traded fund (ticker: KBE) traded below key support (see Chart 2). Not only is the ETF lagging the broad market, but it is solidly below its 200-day moving average. Even worse, the 50-day average also crossed below the 200-day average in what chart watchers call a black or death cross. It is a sign of a major change in the trend for the worse.

Chart 2

The SPDR S&P Regional Banking ETF (KRE) shows all the same characteristics and has been lagging the KBE ETF for months, as well. Gary Kaltbaum, president of Kaltbaum Capital Management, thinks this can be more of a problem for the market. He said that the decline in the 10-year Treasury rate is squeezing bank margins and changing perceptions of the future profits of these companies.

Indeed, the biggest losers in Thursday’s market were such regional banks as Fifth Third Bancorp (FITB) and Comerica (CMA). Of the larger banks, even JPMorgan Chase (JPM), which held up better than most of its peers, now sports its own set of technical failures (see Chart 3).

Chart 3

The bottom line is that the breakdown in the banks is significant not only for the sector but likely for the market, as well. The trends in the major indexes may still be to the upside, but once again warnings are starting to develop.

Michael Kahn, a longtime columnist for, comments on technical analysis at A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.