Those companies head into earnings in good standing. The KBE bank ETF is higher in the early innings of the year with rates on the rise. The U.S. 10-year yield earlier this week hit a peak not seen since March. Banks are typically more profitable in a higher rate environment and when the spread between short-term and long-term yields is wider.
Quint Tatro, president of Joule Financial, is bullish on the banks and said the recent rally is tied to rising rates and the Federal Reserve allowing the group to resume share buybacks. However, while optimistic for the long term, he believes the rally may have run too far, too fast.
"The reality is they probably got a little ahead of themselves and I think that we might see some sell-the-news reactions during earnings season here, but when that happens, I think buyers can be at the ready to buy the weakness if we get it," Tatro told CNBC's "Trading Nation" on Wednesday.
Tatro highlights JPMorgan and Goldman Sachs as two standout picks. JPMorgan has risen 12% so far this year, and Goldman Sachs 17%
Todd Gordon, founder of TradingAnalysis.com, said financials' outperformance is part of a broader rotation in the market. The group, alongside energy, has begun to beat the sectors that outperformed last year such as consumer discretionary and technology.
"If you look inside of financials, they are doing really well – consumer finance, insurance, asset managers, investment services, there's a lot of subindustries within the sector that are doing well," Gordon said during the same "Trading Nation" segment.
"We've come a long way in the financials, all the way back to the pre-credit crisis high of 2007," said Gordon. "If they do sell the news a little bit in earnings here in the next week or two, I will be looking to add, specifically in the dividend portfolios for a little bit of yield."
The XLF financials ETF has risen 80% since March lows. It hit a record high on Thursday.
Disclosure: Joule Financial holds JPM and GS.