Pros Say: Bank Rally is Over ... for Now

US financial stocks saw a stellar rally in recent weeks as the beleaguered sector bounced from an extreme slump. But investors baulked at more buying Monday in the wake of Bank of America’s quarterly earnings results.

The Wall Street bank unveiled a sharp rise in the amount of nonperforming assets on its balance sheets, which raised fresh concerns about the sector. One analyst told CNBC to expect a sharp drop in financial stocks.

Sharp Pullback Seen for US Financials

Expect US financials to come back quite sharply from here, Jonathan Reoch, senior portfolio manager at AMP Capital Investors, told CNBC.

“US financials have enjoyed a very strong rally over the last two months … to an extent you are seeing a welcome dose of reality into the sector,” Reoch said.

A stricter regulatory environment is going to hamper recovery for financial companies, he added.

Take Profits after Bank Rally

Traders should take profits now from the financial stocks “especially ahead of the US stress testing results, which look as though they are going to be bad news. Long-term investors should continue to hold bank shares with a view to topping up in market weakness,” Rob King, senior advisor at BBY, told CNBC.

Government the Biggest Competitor

Private investors are less willing to step into the banking and auto sectors to buy and turnaround troubled assets because their biggest competitor is now the government, Diane Garnick, investment strategist at Invesco, told CNBC.

Risk Aversion Back with a Vengeance

Risk aversion has returned with a vengeance, notes John Noonan, senior FX analyst at Thomson Reuters. He tells CNBC how this will affect the major crosses going forward.

Buy on Weakness

The banking sector has outstanding value in the Australian market, says Joe Youssef, head of private clients at Austock. He tells CNBC he likes to buy on weakness in markets.

Cash In as Consumers Trade Down

As US consumers trade down in this tough environment, Daphne Roth, head of Asia equity research at ABN Amro Private Banking has come up with a "no-nonsense" basket of stocks to cash in on this.