“As The Banks Go…” – And Right Now They’re Breaking Bad
Big banks breaking down
"As the banks go, so goes the stock market.”
Banks are often seen as a leading indicator for the broader economy and equity market because they sit at the center of credit creating, lending and liquidity. BKX (KBW bank index) has been taking it on the chin lately and Hartnett even goes so far as to say that they are "breaking down". Let's have a look at the bank sector in greater detail.
Source: BofA
Aggressive shorting
Hedge funds aggressively shorted global Financials stocks this week as the sector was net sold in every region. Financials was by far the most $ net sold global sector this week. It is now also the most sold sector for 2026.
Source: GS Prime
Record outflow from financials
The chart shows that we had record outflow out of Financials funds.
Source: EPFR
The ghost of GFC
Hartnett makes the case that Wall St ominously trading ’07-’08 analog.
Source: BofA
More on the ghost GFC
It can of course get much much worse. FMS banks allocation fell to a low of -48% UW by Mar’09.
Source: BofA FMS
Credit spreads about to break higher?
At some point, volatility will spill over to spreads (and to banks...).
Source: Macrobond
Stagflation
Goldman points out that within the equity market, sector performance during past oil supply shocks has been similar to the typical performance during stagflationary environments. In those episodes, financials actually have not done that poorly.
Source: Goldman
Positioning
Financials positioning as proxied by Deutsche Bank shows financials already down to a 10th percentile. This is both long-onlies and hedge funds.
Source: DB
Valuation
Looks to be trading on the cheaper end, as per Morgan Stanley.
Source: Morgan Stanley
Oversold
Here is how oversold Blackstone (chart 1) and Morgan Stanley (chart 2) are. 14-day RSI.
Source: Marquee
Source: Marquee
The numbers are alright
Here are the JPMorgan Chase & Co broker consensus 1Y forward EPS.
Source: FactSet
Fed
Here is what's priced in for Fed and how that has developed in the recent past.
