What a Week: Banks Take a Beating

Another week of tame losses for major averages obscured the harsher fall of financials as a few key economic developments sent interest rates skyward. The lesson that banks can prosper even when rates rise was all but ignored.

For the week, The Philadelphia Stock Exchange/KBW Bank index lost 3.4%, and it's now down 4.5% for the year. That was considerably worse than the 0.1% drop in the Dow Jones Industrial Average, to 10,784.78, or the 0.3% decline in the S&P 500, which ended at 1201.6. The Nasdaq Composite lost 0.9% on the week to 2058.62.

The simple reason why the financial sector got hit is that the yield on the 10-year Treasury note rose from under 4% just over a week ago to 4.26% at the close on Friday. The big hits have come from signs that the economy is doing well, that the Fed plans to keep raising rates and that higher inflation might be brewing. ...