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Banks are deep in a bear market, and traders see little reason for hope

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Trading Nation: Bank stocks lead decline, here's what to watch

Bank stocks are breaking down.

The KBE bank ETF, which includes major companies Citigroup and JPMorgan, has fallen 13% just this week. Losses accelerated on Wednesday after Federal Reserve Chairman Jerome Powell warned of significant economic risk ahead. Every stock in the KBE is in a bear market after falling more than 20% from 52-week highs.

Economic pain from the coronavirus pandemic will continue to hit banks hard, warns Mark Tepper, president of Strategic Wealth Partners.

"It is tough to find the silver lining for banks right now. I mean, you typically don't want to own banks in a recession, and especially this recession, when there's real long-term demand destruction. You know, our economy's not going to snap back to 2019 levels quickly. It's going to take some time," Tepper told CNBC's "Trading Nation" on Wednesday.

Tepper warned of the knock-on effects of weaker consumer spending and smaller businesses struggling after reopening. 

"All of that means small businesses are going to have to negotiate lower lease rates, then that's going to cause the commercial real estate owners to negotiate with the banks and, what do you know? In the end the banks are left holding the bag once again. Last time it was residential real estate. This time it's commercial real estate, so I would not be buying them here," Tepper said.

JC O'Hara, chief market technician at MKM Partners, also sees trouble in the stock charts.

"When we look at the KBE S&P 500 banking ETF, it screams that there is zero appetite for banks by market participants. The ETF was cut in half through the month of March. It had a very weak bounce. And truthfully, the bounce looked to us more like sideways consolidation," O'Hara said during the same segment.

"The largest concern of ours, with this ETF is it's actually trading at a 52-week relative low versus the S&P. So for us, we want to avoid this area. We'd rather stick with stocks that are moving higher than stocks making new relative lows," said O'Hara.

The KBE ETF is down 45% this year. The financials sector is the second worst performer this year behind energy stocks. 

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