“Here we go again. Bank stocks are especially poor performers today with the KBW Bank index falling 1.9% while the S&P Regional Bank index sinks 2.2% to the lowest in just over a year. Colleague Felice Maranz reports there’s continuing concern about a profit squeeze, as the institutions pay out more to attract deposits while facing cutthroat competition for loans. (In other words, short-term rates [what banks pay depositors, as well as the rate regime they themselves borrow from] are rising, while longer-term rates [what banks charge borrowers] remain relatively flat [or, are rising less-rapidly])

It’s an idiosyncratic situation for banks. Profit outlooks and share prices should be strong given the healthy economy, rising wages and business demand for loans. But they’re not. Seeing bank stocks drop amid a strong economy is somewhat alarming, however in this case there’s little to fear from a macro perspective. (We agree on the macro view)

Delinquencies and loan charge-offs are not rising. Even the credit-card delinquency rate — usually the first to rise as the economy slows — has shown no discernible turn higher. Meantime, y/y commercial & industrial loan growth is stable, though slow, at ~5%.”  (Again, the macro view remains constructive, which, for now, keeps us constructive on financials)