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Bank stocks are enjoying a nice tailwind right now, but there may be difficult times ahead for the sector, top investor Katie Nixon told CNBC on Friday.
That's when she'll be looking to trim some of her positions.
Nixon, who manages $234 billion in assets as chief investment officer for Northern Trust Wealth Management, told "Power Lunch" she'll make that call based on what the Federal Reserve does with interest rates.
The market is anticipating the central bank will move in December, but Nixon isn't in that camp. However, if the Fed does hike in December, the next increase won't be for a very long time, she said.
"So it's going to be a really … challenging environment for banks. And if the Fed does hike more aggressively than the market thinks, you're going to see the yield curve flatten out like a pancake, and again that's going to be very hard for banks," Nixon noted.
That said, she still likes financials, pointing out that banks have been having an "amazing" several weeks. On Friday, JPMorgan, Citigroup, Wells Fargo and PNC Financial reported earnings that beat expectations.
Nixon sees capital markets activity, as well as volatility in currency, interest rates and fixed income markets as positive for banks.
A Fed hike will also improve the fundamentals for financials, she said, even though the market is already pricing it in.
"The market is anticipating that the Fed is going to hike rates. But this is also going to keep volatility high, which is ultimately going to be good for the trading revenues of these banks," she explained.
For Eric Wasserman, managing director at Guggenheim Securities, the earnings beats showed that capital markets and loan growth were stronger than people expected.
He told "Power Lunch" there are three key takeaways from the results. One, revenue outlook is a little more robust. Two, credit remains benign, with several banks releasing previously built reserves for energy losses now that the commodity price is higher. Lastly, those two positives offset higher expenses.
Going forward, the challenges facing the banks will be largely macro. A Fed hike would be modestly positive for the sector, Wasserman said.
"But to what extent is this loan growth sustainable in, let's call it, kind of a 2 to 2.5 percent GDP environment? I think that remains the biggest issue for these institutions," he noted.
As for Wells Fargo, Wasserman said the new CEO Tim Sloan did a good job of articulating the actions the bank is taking in the wake of the phony accounts scandal on the conference call Friday. "I think they're doing a good job of getting very, very significant remediation efforts underway. But I think in terms of the financial impact of that, I think he was very transparent that they are as yet unknown."
Disclosures: C, JPM, WFC are investment banking clients of Guggenheim.