As earnings seasons approached, investors flocked to financial stocks on anticipation that the high hopes for the sector would come true. So far, it's been an expensive losing bet.
Bank shares slumped Friday in an early but important round of profit reports. JPMorgan Chase, Wells Fargo and Citigroup — Nos. 1, 3 and 4 in terms of assets — each disappointed the market for various reasons.
Financials broadly fell more than 1 percent by midday, and the KBW Nasdaq Bank Index specifically was off 1.2 percent. Wells Fargo dropped about 2 percent.
That comes as investors have been pumping cash into an exchange-traded fund that tracks the industry, the Financial Select Sector SDPR. The ETF has hauled in just shy of $900 million in July — about a 3.6 percent gain in assets just for the period — as investors bet big on the banks.
Despite the decline Friday, no one is panicking yet. Indeed, ratings firm CFRA kept its buy recommendation on both JPMorgan and Wells Fargo and raised its price target $2 on each of the stocks.
"A lot of the environment around them is still pretty good just fundamentally," said Jim Paulsen, chief investment strategist at The Leuthold Group. "There's borrowing and lending going on again. With the stock market going to new highs, I think it's going to stoke a little new activity."
Bank stocks immediately fell in premarket trading after the three big institutions released their earnings reports. They stayed negative through the trading day as investors digested the positions of the Wall Street leaders, and after weak inflation data sent government bond yields lower.