High U.S. Treasury yields exert pressure, bank stock index deeply in correction zone, Citigroup drops nearly 5% intraday
During Thursday's trading, the KBW Bank Index hit a four-month low, falling 14% from its mid-August peak. Analysts noted that in September, the financial sector's performance relative to other industries was the worst for the same period since 1990. Some analysts also pointed out that concerns over the threat of AI agents, potential impacts from the US midterm elections, and rising interest rates have been overblown. The major banks' earnings season begins on October 13, with profitability becoming a key point of validation.
As U.S. Treasury yields continue to climb, pressure on American bank stocks has intensified further.
During intraday trading on Thursday, October 1st Eastern Time, the benchmark KBW Bank Index once fell 2.4%, hitting its lowest intraday level since the end of May. All constituents of the index declined, with Citigroup (C) leading the drop at one point, falling 4.6%—the largest intraday decline since July. Investors are reassessing the impact of persistently rising Treasury yields on the U.S. economy and banking business.
As of Thursday's intraday session, the KBW Bank Index had pulled back about 14% from its mid-August high. According to the common definition of a technical correction—marked by a 10% drop from a recent high—the index has not only entered correction territory but its 14% decline means the correction has deepened further.
Since the beginning of the year, the cumulative gain of the KBW Bank Index is now less than 2%, significantly lagging behind the S&P 500 Index, which is up about 11% over the same period.
Bank Stocks Under Collective Pressure; Financial Sector's Relative September Performance Worst Since 1990
The recent weakness in bank stocks has spread from individual companies to the entire sector.
Both Capital One (COF) and Wells Fargo (WFC) have fallen more than 15% so far this year; over the past month, Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS) have all declined more than 11% as well.
Truist analyst Brian Foran stated that this September was an "unforgettable September" for financial stocks, with the sector's performance relative to other industries at its worst for the same period since 1990.
Foran believes that the current weakness in financial stocks has actually persisted for quite some time, tracing this round of underperformance relative to the broader market back to April 2025, and points out that the relative performance of the financial sector now shares some similarities with the internet bubble era.
However, he also noted a key difference between the current market and past periods of weakness for financial stocks: Analysts’ earnings revisions for financial companies are still, in fact, positive.
Foran additionally believes it is not just the financial sector feeling the strain. The AI craze is driving capital to concentrate intensely in a few industries, while other sectors such as finance are not participating in this rally to the same degree.
High Interest Rates Plus AI Concerns: Banks Face Multiple Pressures
Rising U.S. Treasury yields are now becoming a key factor behind the recent pressure on bank stocks.
As long-term yields continue to climb, the market is reassessing how a high-rate environment may affect economic growth, funding costs, credit demand, and bank profitability. Meanwhile, worries that AI might disrupt traditional banking models are adding further pressure to bank stocks.
However, there are differing views within the market on the potential impact of AI.
Earlier this week, Wells Fargo's senior banking analyst Mike Mayo stated that concerns about AI agents, the possible effects of the November U.S. midterm elections, and the rise in interest rates have all been "overdone."
Mayo believes that as major banks successively report earnings, the AI "panic trade" in bank stocks may reverse. He particularly emphasized that banks possess an advantage which AI cannot easily replace in the short term—the public’s "trust in banks is a moat for deposits."
This means that although AI may change the way banks operate, alter workforce structures, and impact some financial services, core business areas such as deposits, lending, and client relationships will not be quickly supplanted by AI agents.
Major Banks’ Earnings Season Kicks Off October 13; Profitability Becomes Key Test
Next, investors will shift their focus to the third-quarter earnings reports of major U.S. banks.
The U.S. large banks' earnings season will begin on October 13, with major institutions like JPMorgan Chase set to release results first. At that time, net interest margin, loan demand, deposit costs, credit quality, and performance in investment banking will all serve as key metrics for evaluating banks’ earnings resilience.
Of particular note, even as bank shares have fallen significantly from their August highs, analysts’ earnings expectations have not worsened in tandem. This means the coming quarterly results will further test whether market concerns about high interest rates, AI, and the macroeconomy have already been reflected in share prices.
Currently, bank stocks are in a somewhat unique market environment: On the one hand, rising Treasury yields have renewed vigilance about the economy and financial conditions; on the other hand, earnings expectations for the banking sector have yet to show clear signs of deterioration, while the AI fervor has pushed capital to concentrate even more in a handful of tech stocks.
With the launch of major banks’ earnings season on October 13, whether banks can provide new fundamental clues will become a crucial checkpoint for determining whether this round of bank stock correction will deepen further.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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