Bank Stocks Slide Ahead of Third-Quarter Earnings as KBWB Falls 12%

Large-cap U.S. bank stocks have fallen into correction territory ahead of third-quarter earnings next week, with investors weighing higher Treasury yields, inflation and the possibility of additional Federal Reserve rate increases.

The Invesco KBW Bank ETF (KBWB) has declined 12% from its mid-August high. Over the past month, JPMorgan shares have fallen 7%, Goldman Sachs has dropped 15%, Bank of America has declined 16%, Morgan Stanley has lost 13.7% and Wells Fargo is down 9%.

The sector’s weakness contrasts with a 4% gain in the S&P 500 over the same period. Investors are concerned that tighter monetary policy could reduce lending, increase credit losses and raise banks’ funding expenses.

Chris Grisanti, chief market strategist at MAI Capital Management, said the sell-off reflects expectations for more rate increases and argued that the market may be overstating the risk of an economic slowdown. He characterized the decline as a potential opportunity, not evidence of an approaching downturn.

Gerard Cassidy, a bank analyst at RBC Capital Markets, said further rate increases would make credit conditions and funding costs more important for investors. Surging 10-year and 30-year Treasury yields could push banks to offer higher deposit rates, increasing their costs.

Delayed initial public offerings could also hurt equity-capital-markets activity and weigh on banks with investment-banking operations if deals move into 2027. Cassidy said, however, that underlying bank fundamentals remain strong and that the U.S. economy is not close to a recession.

Cassidy expects the banks’ earnings outlook to remain healthy. He highlighted Wells Fargo, Bank of America, KeyCorp and PNC as companies with potential support from different business trends.

Bank of America could benefit as maturing assets reprice at higher interest rates, helping revenue growth. KeyCorp may gain from commercial loan growth and investment-banking revenue, while the bank could also benefit from companies moving operations back to the United States and from artificial intelligence infrastructure spending.

PNC’s commercial-lending business is another area Cassidy expects to benefit from continued commercial activity. Wells Fargo remains in focus after a prolonged share-price decline, with its operating plans continuing despite recent lending-related headlines.

The banks’ third-quarter results next week will provide the next major test of whether the market’s concerns are reflected in earnings and forward guidance.