US Markets

Bank stocks will pull back soon, but don't give up on them just yet: Trader

Seaburg: A lot of fear still in the market

Investors could see recent market winners like financial stocks correct themselves within the next year, but that doesn't mean banks should be exiled from their portfolios, trading expert David Seaburg told CNBC on Tuesday.

"Bank of America, JPMorgan, these are names that are going to work, and they're going to work long term. Are we going to have slight near-term pullbacks? Absolutely. But longer term, you could see these names double within the next several years," he told "Squawk Alley."

Seaburg, a managing director and head of sales trading at Cowen and Co., said that investors will be better served by putting a lid on their fears and buying into sectors that are working.

"The fear here is not to be involved if the market keeps [going] to the upside, and the fear is also to buy the top when things come crashing down and your performance is shot for the year," Seaburg said.

"There's a lot of trepidation here to come and pay up for a lot of these names that have had such enormous runs, but I think you stick with the ones that are working here," he said, citing bank stocks as one example.

But the momentum in the markets is contingent on companies earnings reports and guidance being in line with analysts' expectations, Seaburg said.

"If [they're] not, we could see a big sell-off midyear. But I think we've got momentum here that could last for a very significant period of time," he said.

After the second quarter of 2017, Seaburg said there will be much more clarity on how long investors' positions in bank stocks should truly be. But for now, Seaburg has a few clear favorites.

"So what would I buy? [I] love the regional banks. I love the financials, the big banks in particular," he said.

"For a value trade, I think that you could start to look at some of the larger-cap and mid-cap biotech names," he added, referring to biotechnology companies with outstanding share values of more than $2 billion.

This is a rally built on hope: Memani

Appearing in an interview Tuesday on "Squawk on the Street," Brian Jacobsen, Wells Fargo Funds' chief portfolio strategist, said that despite their grinding lower in the postelection rally, he has hope for biotech stocks.

"I really do like some of the biotech stocks even though they've been beaten down for a variety of reasons," Jacobsen told CNBC. "There could be a little bit of a handoff as far as biotech and technology ... leading the way forward, at least in the near term."

Jacobsen suggested that the "next leg" of the bull market could be sectors that lagged before the election beginning to outperform. Some, like financial and industrial stocks, have already outperformed thanks to the postelection rally, he said.

In the same interview, Krishna Memani, chief investment officer and head of fixed income at Oppenheimer Funds, said that with interest rates on the rise and a market rally underway, investors won't be so quick to turn to biotech stocks.

"This is a rally built on hope, to some extent, and therefore valuations are extraordinarily important," Memani told CNBC. "The biotech sector is still a very good sector from a growth standpoint, but people don't like growth at the moment, they like value."

"In a rising rate environment, it's really about values, small caps, [and] U.S.-focused companies," he added.

Memani also noted that there are still risks in the market, many of which tend to be overlooked when animal spirits run high.

"It's good to be hopeful, but at the same time it's important to recognize that risks are rising meaningfully as well," he said. "A higher dollar doesn't help margins for large companies that have international operations. Higher rates don't help margins for lots of companies out there."

"So it's worthwhile recognizing that while if Trump does all the things that he is going to do, the markets may go up, but risks are rising at the same time as well," Memani said.