Big banks get stress test green light while rate-cut calls grow — buy financials
Thesis
The Fed's stress test cleared all 32 major banks, prompting JPMorgan's $50B buyback and Goldman's dividend hike — a massive show of financial strength. Simultaneously, Trump's call for rate cuts despite 4% inflation is steepening the yield curve, which directly benefits regional banks that borrow short and lend long. Small caps, which carry more floating-rate debt and depend heavily on domestic bank lending, are already on pace for their best first half since 1991, so KRE offers a concentrated way to play the regulatory green light and political rate-cut pressure simultaneously.
Strategy approach
Build a rule-based strategy that enters long KRE on D1 when the 10-year Treasury yield (US10Y) rises 5 basis points in a single day and JPM makes a new 20-day high on the same or following day. Hold for 15 days with a 4% stop loss.