Banks have been beaten up this month by the burning-hot bond market.
The KBE bank ETF has tumbled more than 7% in August, vulnerable to tumbling yields and a 10-year/2-year yield curve that finally inverted early Wednesday. A flatter, or inverted, yield curve takes a hit to bank profitability.
But, the sharp decline in the banks and broader financials has one trader making a contrarian call.
"By the time that the yield curve starts to steepen, I think it will be too late [to jump back into banks stocks]. People will end up then chasing those opportunities," Quint Tatro, founder and president of Joule Financial, said Tuesday on CNBC's "Trading Nation."
A bearish call on the banking stocks is dependent on whether investors expect the U.S. economy to tank, says Tatro. He does not expect President Donald Trump to allow that to happen.
"If your position is that these interest rates in this bond market are predicting a terrible future and a horrible recession to come, then you probably shouldn't be in stocks at all," he said. "Our position here is that global fear is just that and all of a sudden with one tweet, one headline coming into an election year, which is a high probability in our camp, that those things are going to change the tune very quickly and the clouds are going to part and this is the area that you want to be."
Newton Advisors' Mark Newton does not foresee quite as rosy an outlook for the financials space.
"The trend over the last couple of months has shown pretty dramatic underperformance as the yield curve has come down substantially," Newton said Tuesday. "In the XLF [financial ETF], when you look at daily charts of this, they show a failed breakout into the last part of July and then when yields started to tumble this group really followed suit very closely."
The XLF ETF tried and failed to break out above a September peak above $29. It then rolled over to fall nearly 9% from July high to its August bottom.
"When you look on a relative basis also toward the XLF, the group remains in a downtrend since the beginning of last year so until that changes, I think it's really difficult even with signs of balance sheets in really good shape," said Newton. "It really pays to wait until we see some evidence of yields stabilizing or turning up."