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Bank stocks get ugly as Fed predictions reverse

Wall Street banks are getting creamed in a down day for stocks, as investors revisit picks for when the FOMC will raise interest rates.

The rate hike Wall Street banks were expecting this summer just got scotched by a surprisingly bad jobs report..

U.S. bank stocks were getting hammered Friday, after a disappointing employment report caused economists to scale back expectations for when the Federal Open Market Committee will lift interest rates.

"The job market clearly looks like it has decelerated," said Deutsche Bank chief U.S. economist Joe LaVorgna. "It seems to be matching GDP."

Many major U.S. banks' shares were down more than 3 percent in trading Friday, including JPMorgan Chase, Goldman Sachs and Capital One. Bank of America, Citigroup and Morgan Stanley saw shares down between 4 percent and 5 percent early Friday, and even Wells Fargo, which has outperformed most U.S. banks in the years following the global financial crisis, saw shares down more than 2 percent.

Punch to face taking a beating
Alex Menendez | Getty Images

The bad news comes after weeks where top Wall Street CEOs made public pleas for the Fed to lift interest rates. If the Fed increases rates, it would be a massive boon for consumer banks, which earn billions in interest through the funds they keep stored at the Fed. And that's a boost on banks' net interest income, something analysts have pushed CEOs to justify if rates aren't increased. In recent weeks, bank stocks appreciated as investors increasingly bet on the Fed hiking this summer.

Read MoreFed's Evans sees case for deferring rate hikes for years

Bank of America's Paul Donofrio said at a recent conference the company would "benefit from a more normal rate environment," and in a Thursday discussion at a New York conference, JPMorgan CEO Jamie Dimon said that he also thought the Fed should raise.

Bank businesses including mortgages and other forms of lending would also benefit from a rate hike, along with the interest they would earn from cash stored at the Fed. But it looks like they're a long way from rates increasing for the first time this year.

The CME Group's FedWatch tool, which tracks market expectations for rate hikes, currently has the chance of the next rate increase coming June 15 at a paltry 3.8 percent. The chances for July are 34 percent, and 66 percent for December — meaning that Wall Street banks may still get a small boost from the central bank on net interest income.

Just not much, and definitely not as soon as they — or investors — had hoped.