Bank stocks just surged to a six-month high, but traders are split on the next move

Banks stocks are showing signs of life.

After a summer slump, the XLF financial ETF rallied on Wednesday to its highest level in six months.

The big banks' breakout could be just beginning, according to Michael Bapis, managing director with Vios Advisors at Rockefeller Capital Management.

"We still love the sector," Bapis said Wednesday on CNBC's "Trading Nation."

"They're making more money, and in the interest rate environment we're in, they're going to continue to make money."

Bond yields rallied Wednesday, setting off the financials surge. The yield on the 2-year Treasury note rose to its highest level since late July, while the 10-year spiked to a four-month high of 3.09 percent.

Higher interest rates tend to boost banks' profitability by expanding net interest margins, or the difference between what they make borrowing and what they make lending.

The sector is also undergoing a shift toward greater technological integration, a bullish play for the future, says Bapis.

"We believe we're in the middle of a technological revolution and the banking sector and the technology sector are more aligned than ever," said Bapis. "You can do online banking, you can do online deposits so they're just going to continue to make money alongside technology, so we're long this space for the foreseeable future."

The tech sector has roared past financials this year. The XLK technology ETF is up 16 percent in 2018, while the XLF ETF has added 3 percent.

Stacey Gilbert, head of derivative strategy at Susquehanna, is wary of the banking space ahead of quarterly earnings in mid-October.

"We do think it's a bit too early to overcome some of the last quarter commentary that was much more cautious," Gilbert said on "Trading Nation."

"We'd actually use [Wednesday's] opportunity to take some profits right here."

Wells Fargo, Citigroup, JPMorgan, Morgan Stanley and Goldman Sachs each reported a drop in earnings during the second quarter.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect