Eoin Treacy's view Do they lend to small businesses? Are they deposit taking institutions for regular savers? Do their businesses depend to a large extent on the economic wellbeing of domestic US customers? Some of the larger institutions such as JP Morgan or Citigroup can answer yes to the first two questions but the size of their investment banking activities makes a positive answer to the third question more difficult. However, regional banks fulfill all of these requirements. A relatively small number of such banks are large enough to feature in the S&P500 Regional Banks sector, which makes it less representative. On the other hand, the KBW Regional Banks Index has 50 regional banks and is probably a better proxy for the sector.

In absolute terms, the KBW Regional Banks Index has sustained a progression of higher major reaction lows since bottoming last March. It is currently testing the upper side of the base near 50 and would need to sustain a move below 40 to question potential for a successful upside break and continuation of the developing uptrend.

Relative to the S&P500, the Sector is performing more or less in line with the broader market. When compared to the Diversified Financials, the Sector moved to outperformance in October and remains in a relative uptrend. A sustained move back below 0.15 would be required to question potential for continued higher to lateral ranging.

If we look on the Regional banks sector as a barometer for the wider US economy, then provided it remains in a relatively steady uptrend, the outlook for a gradual US recovery will probably remain relatively sanguine.