×

Rally in bank stocks isn't sustainable, expert says

  • Bank stocks may be enjoying a recent rally, but don't expect the good times to last, investing expert Jason Benowitz told CNBC.
  • Bank stocks got a boost after the major financial institutions passed the latest round of Federal Reserve stress tests last week.
  • Benowitz expects the yield curve to stay flat — and he said that will pressure bank earnings.

Bank stocks may be enjoying a recent rally, but don't expect the good times to last, investing expert Jason Benowitz told CNBC on Thursday.

While financials have been one of the worst sectors in the S&P 500 this year, bank stocks got a boost after the major financial institutions passed the latest round of Federal Reserve stress tests last week. The SPDR S&P Bank ETF (KBE) is up more than 7 percent in the last month of trading.

"We don't that this is sustainable. We think the yield curve will stay relatively flat ... and that will pressure bank earnings," the senior portfolio manager at Roosevelt Investments said in an interview with "Power Lunch."

The yield curve refers to the relationship between short-term and long-term interest rates. Bank profits increase when long-term rates rise, making the curve steeper.

Customers wait in line for an ATM outside of a Wells Fargo bank branch in Los Angeles.
Patrick T. Fallon | Bloomberg | Getty Images
Customers wait in line for an ATM outside of a Wells Fargo bank branch in Los Angeles.

His key concern around bond yields is inflation, which he believes will continue to be suppressed due to wireless carriers reducing prices and drug prices being held back.

Benowitz also thinks it will be hard for the Fed to hike interest rates again this year if inflation remains low.

And while the yield curve is the most important consideration, economic growth also matters because it translates into loan growth, he said.

"Loan growth has been choppy this year and as we look ahead, we think it may slow down again."

That's because banks are reluctant to lend to a number of sectors, including retail and automotive, Benowitz said. Plus, the decline in oil prices will impact lending to the energy and industrial sectors, and higher mortgage rates are squelching refinancing.

However, on Wednesday, Jeffries encouraged investors to buy U.S. financials , pointing to the recent stress-test successes and fading regulation under the Trump administration.

— CNBC's Evelyn Cheng and Thomas Franck contributed to this report.