Here’s what’s behind the bank stock rebound

Bank stocks aren't letting the prospect of continued low interest rates keep them down.

After falling on the Federal Reserve's Wednesday announcement that it is cutting expected rate hikes for 2016 in half, financial stocks staged a comeback to end the week up almost 2 percent. However, traders warn that the rally will most likely be short-lived.

An increase in the federal funds rate would come as a boon for banks, whose earnings have been hit by the lower benchmark interest rates on lending over the past several years. But Chantico Global's Sanchez said bank stocks have found another reason to rise — stock buybacks.

"The Fed's dovish comments should actually not be good for the banks," Gina Sanchez said Friday on CNBC's "Power Lunch."

"However you did hear news out of JPMorgan and BofA that we're going to have some major buyback programs," Sanchez said.

JPMorgan announced the authorization of a $1.88 billion share repurchasing program on Thursday. Earlier in March, Bank of America announced a plan to spend $4 million on buybacks, which increased by another $800 million on Friday.

Despite the ability of major buyback programs to boost share prices for the banks, Sanchez remains skeptical of any long-term strength in these stocks.

"This is not long term, it will just prop up as a trading strategy for now," Sanchez said. "With the Fed basically on hold for awhile, I think the move in bank stocks has happened, and we're probably not going to see much more unless we hear of better net interest margins for them."

Bank stocks have risen 8 percent this month amid a broader market rally, as the Dow Jones industrial average and the S&P 500 have erased major losses and turned positive for the year. Despite the recent bounce back, the S&P 500 financial sector is still one of the worst performers of the year, down 4 percent year to date.

Read MoreThe nagging problem with the stock market's rebound

"When we look at them on a relative basis, the rally actually has not been that impressive compared to other segments of the market," said Chris Verrone in a "Trading Nation" segment on Friday.

Verrone, head of technical analysis at Strategas, said banks will have a hard time making a meaningful recovery with 10-year Treasury yields still below 2 percent.

"We're more inclined to back away from this rally," Verrone said. "Ultimately, so long as the yield curve really hasn't steepened to any meaningful extent, it's a tricky environment for the bank stocks to work."

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CORRECTION: JPMorgan announced the authorization of a $1.88 billion share repurchasing program last week. The value was misstated in an earlier version of this article.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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