What's up with banks? Since Monday's close, I have noted that banks have been outperforming...a trend that is now stretching into four days, particularly the largest institutions.
Banks this week:
- Bank of America: 5%
- Citigroup: 4%
- JPMorgan: 3%
- Goldman Sachs: 2%
Likely causes for the rally...
- Sector rotation...out of Utilities (down 1.3 percent this week) and Healthcare (down 0.6 percent) and into Financials (up 2.7 percent). Banks have been a laggard group year-to-date, but are now catching up;
- Capital markets, particularly IPOs, have seen a tick up, though trading is expected to be muted;
- CCAR (Comprehensive Capital Analysis and Review) expectations are improving. The CCAR is an annual exercise by the Federal Reserve that tests capital adequacy for big banks.
- The Treasury yield curve is slightly steeper this week, as 10-year yields have moved up roughly 10 basis points, to 2.73 percent.
Another explanation is that there is still a lot of cash on the sidelines, especially in Europe. One trader noted to me that In Europe, we saw two huge secondary placements last week at almost no discount to market. Gjensidige sold its 20% position ($550 million) to the market at a 3% discount and RBS sold its 28% position in Direct Line ($1.6B) at no discount. I know some Europeans are flush with cash due to the Verizon/Vodafone deal but to place $2B in 30 minutes at little discount tells me there is a lot of cash that still needs to be put to work.
And why is Bank of America a leader? Several traders told me the worst is behind them on the litigation front and there is a belief the core banking business is slowly improving.
—By CNBC's Bob Pisani