Regional banks stand to benefit from higher interest rates, and one analyst sees their stocks beating the market in the months ahead.

Key regional bank ETFs like the SPDR S&P Regional Banking ETF KRE, -2.10% and the iShares U.S. Regional Banks ETF IAT, -2.25% each climbed about 3% on Friday as a strong nonfarm payrolls report raised the odds for a rate hike in December.

“Regional banks had already been working higher before Friday’s NFP report, but the spike in rates gave regional banks the pop to fresh highs,” said Jonathan Krinsky, chief market technician at MKM Partners, in a note dated Sunday.

“Relative strength vs. SPX is still working through a five-year base, and while they are perhaps extended in the near-term, the duration of the relative strength base gives us confidence they can outperform the market from here.”

Krinsky is referring to the KBW Nasdaq Regional Banking Index’s performance against the S&P 500 SPX, -2.37% , and he illustrates it in this chart, which is taken from his note. The PowerShares KBW Regional Banking ETF KBWR, -1.74% tracks that KBW index.

MKM Partners

The banking sector is seen benefiting from higher rates as it can charge borrowers more, while still not being too generous with the rates it pays to savers. In other words, it will enjoy higher spreads. And regional banks could feel the benefits in particular, as they’re more reliant on such activity.

Among the regional banking plays, the SPDR ETF may be the best for true exposure to regional banks. That’s what Todd Shriber, writing over at TheStreet.com, argued earlier this year.

If you don’t want to make a broad bet on regional banks via an ETF, Krinsky highlights a few individual stocks. Writing over at Forbes earlier this year about investing in regional banks, John P. Reese said he would “advise sticking to the most fundamentally sound and financially secure plays out there, rather than diving into a bank index fund that pays no regard to individual firms’ valuations and quality.”

MKM Partners