Banks hit new highs, but Fed could ‘put the brakes’ on their momentum

Soaring bank stocks look ripe for a pullback, some market watchers are warning.

"The market has gotten way ahead of itself. And I think it's going to be the Fed that is going to put the brakes on this whole notion," Boris Schlossberg, managing director of FX strategy at BK Asset Management, said Tuesday on CNBC's "Power Lunch."

A handful of banking giants hit multiyear highs Tuesday as the financial sector continues to thrive in the weeks since the U.S. election.

Shares of Bank of America, Citigroup and Goldman Sachs hit their highest levels since November 2008, August 2015 and November 2007, respectively; JPMorgan hit an all-time high.

These records come as the financial sector has surged since the election, up nearly 19 percent in the last month as the market's best-performing sector in that time.

Bank stocks are heavily reliant on the bond-yield environment, and as the perceived odds of the Fed raising rates next week have risen, the banks have gotten a big boost. Schlossberg warns that rather than raise rates over and over again, "the Fed could simply do the one and done," hiking in December and then choosing to "sit for the next six months."

Matt Maley, equity strategist and technical analyst at Miller Tabak, calls the banks "overbought and quite extended" at this juncture.

Under a Trump administration, "the long-term picture for banks should be positive ... with less regulation, a stronger economy and higher interest rates. However, they won't rally in a straight line," Maley wrote to CNBC in a email Tuesday.

Maley's analysis of the charts suggests that long-term yields will soon drop, which could be expected to lead to a dip for the bank stocks.


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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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