European banks' third-quarter earnings have generally produced positive surprises, but changes to the external environment mean investors have already moved on, according to Hugh Gimber, global market strategist at JPMorgan Asset Management.
Although making modest gains following their respective results, a fundamental rerating of the European banking sector by the market has yet to take hold, with sentiment dampened once again by a resurgence of coronavirus cases across the continent.
As of Wednesday afternoon, the Stoxx Europe Banks index is down more than 45% since the start of the year.
Speaking to CNBC's "Squawk Box Europe" on Wednesday, Gimber said investors are weighing up the positive earnings that are already in the bank against the prospect of further deterioration in the pandemic outlook.
"So it feels to me like when we are looking at Q3 numbers today, they already feel like they are a long way back in the past, and that really now the key factors driving markets are going to be progress in controlling this new wave of the pandemic, and the potential news on vaccine trial results that could be expected at any point really over the next couple of weeks," he said.
Gimber suggested that in this context, it is understandable that some stocks are not getting the just rewards that they may have seen in previous earnings quarters.
Although there is optimism in the banking sector's numbers, Gimber said the three factors underlying European banks' recent share price woes have been low interest rates putting pressure on profit margins, investor concerns over large loan loss provisions and the struggle to return capital to shareholders.
"If you break down those three factors, I think you can see that the rate outlook still looks pretty difficult for the banks, but we have had progress on loan losses and capital return prospects from across the European banking sector really over the past couple of weeks," Gimber said.
"That to me suggests that the outlook is starting to become clearer and that you can start to line up some of the catalysts for a rotation in the market towards some of the more beaten up sectors that we have had so far this year."
However, he argued that until investors were confident that the pandemic outlook is becoming more straightforward, it is unlikely that this rotation will truly take hold.