What's up with the banks?
Even as interest rates are expected to rise this year and Treasury yields are rallying, bank stocks are taking a hit.
Financials are among S&P 500 sectors in corrections, and bank ETFs are getting pummeled. The KRE, which tracks regional banks, along with the KBE, which tracks larger banks, just posted their worst weeks in a little over two years.
Gina Sanchez, CEO of Chantico Global, is watching banks' performance over the last several sessions. While she is positive on the group in the longterm, she has near-term concerns. Here are her reasons why.
• Banks typically reap the rewards of higher interest rates, but they appear to be bucking that trend, falling amid a widespread concern in the market around recently announced tariffs and trade war fears.
• While the broader market has been hit considerably, and banks are participating in that decline, the reason behind the banks' particular downside lies in protectionism holding down long-term growth expectations, and the flattening of the yield curve.
• Long-term growth expectations impact the "long end" of the yield curve, referring to long-dated Treasury notes like the 10- and 30-year yields, which are not keeping pace with short-dated Treasury yields like that on the 2-year note.
• While banks typically do well when interest rates rise, the reality is a steeper yield curve lends itself to greater profitability for the banks themselves.
Bottom line: Bank stocks are thought to fare well in rising rate environments, but as Treasury spreads fall, financial equities are taking a hit.