Financial stocks break out midyear on Fed

JPMorgan building in New York.
Scott Mlyn | CNBC

Bank stocks are finally separating themselves from the rest of the market this month, validating a number of Wall Street research houses that said the past two weeks that these shares will lead the way for the rest of 2015.

The S&P 500 financials index is up more than 2 percent in June, double the next best sector, consumer, and trouncing the S&P 500, which is up about 0.7 percent.

The group is getting a boost this month as investors up their bets that the Federal Reserve will raise interest rates at least once this year, a move that should boost margins for banks as they are able to lend funds at higher rates.

This sentiment was bolstered Wednesday when the Fed's economic forecast indicated that two rate hikes by the central bank may occur this year.

Strategists from Morgan Stanley and Goldman Sachs are among those who recently called for a bank stock rally.

Here's why and the favorite picks in the space from them and others ...