Bank Stocks Obliterated to Start the Year

Against conventional wisdom that says 'buy bank stocks in a rising rate environment', the mega-cap names in the sector have been relentlessly crushed so far this year. As an illustration, Bank of America (NYSE: BAC) is down 27% YTD, Citigroup (NYSE: C) is down 28% YTD, Goldman Sachs (NYSE: GS) is down 17% YTD, and JPMorgan Chase (NYSE: JPM) is down 16% YTD, among many others. The sector's flagship ETF, Financial Select Sector SPD (NYSE: XLF), is down 15% YTD.

The carnage is said related to the follow:

Lower for longer - Despite the Fed raising interest rates for the first time in 9 years in December, some feel that given the issues in China and other emerging markets, the energy price collapse, and signs of a slowdown in the U.S., the Fed may have to abandon its plan to normalize interest rates.

Energy risk - $30/bl oil is wrecking havoc on energy companies and bankruptcies en mass could follow. In its latest quarter, Bank of America said its provisions for credit losses increased $264 million in the quarter, mainly due to higher energy-related charge-offs and reserve increases for energy exposure. JPMorgan (NYSE: JPM) and others also increased their provisions for energy-related losses.

Fear of U.S. recession - Recession talk, which is broadly defined as two consecutive quarters of declining GDP, is growing louder every day. While the banks' balance sheets have been stress-tested by the Fed for a recession, or worse, it still means a dark and risky period for investors.

Overseas bank liquidity fears: Liquidity worries have gripped a number of large European banks. Today the concerns forced Deutsche Bank (NYSE: DB) co-CEO, John Cryan, to send a message to employees assuring them that the company "remains absolutely rock-solid, given our strong capital and risk position."

Political rhetoric: Not a day goes by without Democratic Presidential hopeful Bernie Sanders slamming Wall Street. He seems to have tapped into a vein among younger voters that socialism should be embraced. His commentary also has Hilary Clinton - the more likely nominee - moving to the left.

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