Monitor credit-sensitive pockets of the stock market for a read on the US economy

At a very basic level, business development companies and regional banks are both in the lending business. And their borrowers aren’t generally the most creditworthy companies.

But two ETFs that track regional banks and these providers of private credit — SPDR S&P Regional Banking ETF and VanEck BDC Income ETF, respectively — have charted different courses in 2025: the former flying and the latter sliding.

Since BIZD has a higher dividend yield than KRE, the stock price chart overstates the performance gap year to date — but it’s still immense, at nearly 20 percentage points through December 24.

There have been fair reasons for the divergence in 2025. One was the reversal of the conditions that sparked a regional banking mini-crisis in 2023: high interest rates, particularly for the longer-term bonds these institutions held on their balance sheets. The Fed’s easing cycle provides some relief for regionals from lower interest rates paid on deposits. 

And private credit has suffered its own face-plants: notably, the blowups of US subprime lender Tricolor and auto parts firm First Brands.

“I think more interesting for the private capital space is not the next ‘cockroach’ in private credit, but a changed backdrop,” tweeted Jon Turek, founder of global macro research firm JST Advisors. “Since the GFC, these firms have had the tailwind of either low cost of capital or high NGDP. That ‘either, or’ seems like a less clear bet going forward.”

If this is still the golden age of private credit, then why does the stock performance of those who provide it look so tarnished? Conversely, if US regional banks are hitting 52-week highs, how worried can we be about the domestic economy?

The performance gap in 2025 leaves us with those questions, and something to monitor going forward.

If 2026 is a world in which the US economy is healthy, inflation is still high enough to keep monetary policy more neutral than accommodative, and employment isn’t weak enough to demand lower rates, then these are two pockets of the market you’d expect to be doing pretty well. 

While idiosyncratic divergences can happen (and we’ve seen two in the past three years!), they certainly aren’t common. Any prolonged period of poor performance from either of these ETFs would likely speak to mounting worries about the health of the US economy, given their exposure to less-than-pristine borrowers.