Bank stocks have acted as the leader during the post-election rally but were the biggest drag during Tuesday's market sell-off. One analyst thinks the trend has only just started.
Bursting higher on a belief that stronger growth would boost interest rates while regulations would be rolled back, the industry has been on a tear. The KBW Nasdaq Bank Index is up more than 25 percent since Donald Trump won the presidency Nov. 8.
However, analyst Dick Bove believes banks — he mentioned JPMorgan Chase specifically in a note to clients — have been rising for "the wrong reasons" and are in for a sell-off now that some realities have begun to sink in.
Specifically, he sees the Trump agenda getting blocked as the White House remains mired in a fight over a new health-care plan and multiple other clashes and controversies on Capitol Hill.
"There's a reason why all these bank stocks are cratering. It's because of the belief that none of the Trump programs will be put into effect," Bove, vice president of equity research at Rafferty Capital Markets, said in a phone interview. "There won't be enough money in the government to allow for a tax cut and fiscal stimulus program if in effect the government can't even pay the interest on the debt without borrowing the money."
If the issue merely focused on the debt, it's unclear how much effect that would have on Trump's plans.