Amid a sluggish month for the stock market overall, banks have been an unexpected bright spot.
Stocks as measured by the S&P 500 are negative for October, down about 1.5 percent heading into Wednesday trading. Lackluster economic reports, uncertainty in monetary policy and a bruising homestretch in the presidential campaign have helped keep equities in check.
After a tough year, though, banks are now outperforming.
The KBW Nasdaq Bank Index has gained a healthy 2.6 percent for the month and was outperforming the S&P 500 in early trading Wednesday. That comes amid a difficult year for the industry and big banks in particular, with the KBW index down 1 percent for the year against a 4.4 percent gain for the S&P 500.
Not much has changed fundamentally for banks. They still face increased regulatory pressure, and profitability has been difficult amid a flat yield curve and a Fed that has been on hold with interest rate increases this year.
However, analyst Dick Bove believes an important shift is happening:
In 2016, it is evident that bank earnings will not keep pace with 2015 results. The economy is weighing heavily on their earnings outlooks. Yet the stocks are doing unusually well. What is being demonstrated here is that these stocks do not respond to earnings as much as they do to changing psychology."