High US Treasury yields exerted downward pressure, bank stock indices remained in correction territory, and Citigroup fell nearly 5% intraday.

As US Treasury yields continue to climb, pressure on US bank stocks intensifies.

On Thursday, October 1st, Eastern Time, the benchmark KBW Bank Index fell as much as 2.4% during trading, hitting a new intraday low since the end of May. All components of the index declined, with Citigroup (C) leading the losses, falling as much as 4.6%, its biggest intraday drop since July. Investors are reassessing the impact of persistently high U.S. Treasury yields on the U.S. economy and the banking sector.

As of Thursday's trading session, the KBW Bank Index had fallen approximately 14% from its mid-August high. According to the usual definition of a 10% drop from a recent high as entering a technical correction phase, this index has not only entered a correction phase, but the 14% pullback suggests a further deepening of the correction.

So far this year, the KBW Bank Index has risen by less than 2%, significantly lagging behind the S&P 500 Index, which has risen by about 11% over the same period.

Bank stocks came under pressure across the board, and the financial sector's relative performance in September was the worst since 1990.

The recent weakness in bank stocks has spread from individual companies to the entire sector.

Capital One (COF) and Wells Fargo (WFC) have both fallen by more than 15% this year; in the past month, Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) have also fallen by more than 11%.

Truist analyst Brian Foran described September as a "unforgettable September" for financial stocks, with the sector performing its worst relative to other sectors since 1990.

Foran believes that the current weakness of financial stocks has actually been going on for quite some time. He traces this round of weakness of financial stocks relative to the broader market back to April 2025, and points out that the current relative performance of the financial sector has some similarities to the period of the dot-com bubble.

However, he also pointed out an important difference between the current market and past periods of financial stock slump: analysts' current revisions to their earnings forecasts for financial companies are actually still positive.

Foran also believes that the current pressure is not limited to the financial sector. The AI boom is driving funds to concentrate in a few industries, while other sectors such as finance have not participated in this rally to the same extent.

High interest rates coupled with concerns about AI are putting multiple pressures on bank stocks.

The continuously rising yields on US Treasury bonds are becoming a significant factor contributing to the recent pressure on bank stocks.

As long-term US Treasury yields continue to rise, the market is beginning to reassess the potential impact of a high-interest-rate environment on economic growth, financing costs, credit demand, and bank profitability. Meanwhile, concerns that AI may transform traditional banking business models are further increasing the pressure on bank stocks.

However, there are differing opinions within the market regarding the potential impact of AI.

Mike Mayo, a senior banking analyst at Wells Fargo, said earlier this week that market concerns about the threat of AI agents, the potential impact of the November U.S. midterm elections, and rising interest rates have "gone too far."

Mayo believes that the AI-driven "panic trading" in bank stocks may reverse as major banks release their earnings reports. He particularly emphasizes that banks possess an advantage that AI cannot easily replace in the short term—public trust in banks is a moat protecting deposits.

This means that although AI may change how banks operate, their staff structure, and some financial services, core businesses such as deposits, credit, and customer relationships will not necessarily be quickly replaced by AI agents.

The earnings season for major banks kicks off on October 13th, with profitability becoming a key indicator.

Next, investors will turn their attention to the third-quarter earnings reports of major U.S. banks.

The earnings season for major U.S. banks will begin on October 13, with major banks such as JPMorgan Chase leading the way. Net interest margin, loan demand, deposit costs, credit quality, and investment banking performance will all be key indicators for the market to assess the resilience of bank profitability.

Of particular note is that while bank stocks have fallen significantly from their August highs, analyst earnings expectations have not deteriorated accordingly. This means that upcoming earnings reports will further test whether market concerns about high interest rates, AI, and the macroeconomy have already been priced into stock prices.

Currently, bank stocks are in a rather unique market environment: on the one hand, the continued rise in US Treasury yields has heightened market vigilance regarding economic and financial conditions; on the other hand, the profit expectations of the banking sector have not yet shown a significant deterioration, while the AI boom has further driven funds to concentrate on a few technology sectors.

With the start of the earnings season for major banks on October 13, whether the banking sector's performance can provide new fundamental clues will be a crucial juncture for the market to observe whether this round of adjustments in bank stocks can continue to deepen.

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