The Curious Lethargy of Bank Stocks

This column was originally published on RealMoney on Jan. 9 at 12:00 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

It's all about interest rates these days. A growing consensus that the Federal Reserve is almost done raising rates lit a fire under stocks last week, triggering a sharp rally to multiyear highs. Curiously, though, financial stocks didn't participate in this euphoric move. Curious indeed.

Over the holidays, I pointed out the Philadelphia banking index, or BKX, was sitting at multiyear resistance and looked ready to break out. It's odd that the index and its underlying components didn't break out during last week's powerful rally. After all, this particular sector should lead the charge in a favorable rate environment.

So there's reason for caution after last week's hot market. I don't want to overstate the case because the odds still favor a sector breakout. But this strange divergence should be watched closely. Bank stocks have another week or two to make their move. After that, gravity could take control and push them considerably lower. ...