Bank stocks may have gotten way ahead of themselves

Bank stocks were on a tear postelection but slipped Wednesday, and they could be headed lower as investors may be waiting to see how Donald Trump's agenda will play out.

"I think we're really at the end of this part of the postelection move," Eddy Elfenbein, editor of the Crossing Wall Street blog, said Wednesday on CNBC's "Power Lunch."

"This has been a tremendous rally for bank stocks. I mean, the sector just doesn't normally act like that," he said.

The KBW bank index fell nearly 2 percent on Wednesday, after rising nearly 14 percent following Trump's victory.

Baird on Wednesday downgraded Bank of America and Capital One to "neutral" from "overweight," citing a more cautious view on the financials overall.

The postelection bank rally has "largely discounted potential benefits from rising interest rates, lower tax rates and more aggressive capital return. We believe investors should book gains and wait for more evidence that the structural improvements in macro trends and regulations will materialize," according to the note written by Baird analyst David George.

Indeed, the potential loosening of regulations on banks played into the rally, but much of Trump's agenda remains to be seen, Elfenbein said.

From a technical standpoint, the banks could make for a good "buy-the-dip" trade, according to Craig Johnson, senior technical research analyst at Piper Jaffray.

"Short-term, they're going to pull back a little bit. But in the longer term, I think there's still more room to go," Johnson said Wednesday on CNBC's "Power Lunch."

Examining a five-year chart of the Financial Select Sector SPDR Fund (XLF), Johnson points to a breakout following a "classic" reverse head-and-shoulders setup, projecting it heads to $25 in the coming months. The XLF closed Wednesday at $21.86.

"So I'd be buying any pullbacks," the technical analyst said.


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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.

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