Banks and the Fed: Why this time is different

Expect gradual path: Lockhart

Bank stocks should rise along with interest rates, or so the thinking generally goes around Wall Street. The reality, though, is quite a bit more complicated.

Share performance once the Fed starts hiking depends on a slew of factors, including how quickly rates rise, what economic conditions are and how well the central bank sets forth the groundwork for tightening.

In the most recent rate-hiking cycles, bank stocks actually struggled. This time could work out better, one analysis suggests.

"Bank stocks today look better positioned for relative outperformance, at least in the early part of the coming cycle," Bernstein analysts John McDonald and Kevin St. Pierre said in a report for clients.

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While "this time is different" could be the epitaph for any number of wayward market predictions, the Bernstein analysis looks at the way conditions indeed are different from the three previous cycles. The firm expects that "credit costs should create a window for bank stocks to outperform in the early stages of the upcoming tightening cycle." The analysts said beneficiaries in the large-cap area are: