Bank bears are back.
Investors yanked more than $1 billion from the $29 billion Financial Select Sector SPDR Fund (XLF) Friday, the largest outflow in more than a decade. In addition, trading in the fund hit $3.6 billion, more than double its average daily volume for the past year, after reaching $4.8 billion on Thursday.
Big U.S. banks have been under pressure recently as a result of struggling mortgage businesses, disappointing loan growth and concerns over international operations. With Treasury yields rising, investors worry that higher borrowing costs could hurt lending.
"The higher interest rates, the higher mortgage rates and higher gas prices mean people won't be making so many loans," said Donald Selkin, chief market strategist at Newbridge Securities. "Mortgage rates are the highest in a number of years, so the lending volume maybe won't be as strong as people thought."
Earnings season kicked off in earnest Friday, with Citigroup Inc., Wells Fargo & Co. and JPMorgan Chase & Co. posting mixed results. Bank of America reported quarterly results Monday, and debt-underwriting revenue came in worse than estimated.
The KBW Bank Index has declined for five straight sessions, losing 6.1% in that time.
But while bank stocks are struggling in the current economic environment, investors need to start figuring out if they're actually a harbinger of what's to come for the broader market, said Jim Paulsen, chief investment strategist at Leuthold Weeden Capital Management.
"People are wondering about a general slowdown — do you want to be hanging out with cyclical stocks?" he said. "If financial markets are down, it might crimp deal activity and other parts of their businesses. With rates not coming off from their recent rise, you could expect further weakness."