Why It's Time to Take Profits on Bank Stocks, Wells Fargo, Citi

NEW YORK (TheStreet) -- There seems to be a general consensus among market commentators and investors that rising interest rates will be good for U.S. banks. In anticipation, bank stocks like Bank of America (BAC) , Citigroup (C) , JPMorgan Chase (JPM) , Wells Fargo (WFC) and the Financial Select Sector SPDR ETF (XLF) have had a tremendous run over the past two years.

BAC Chart

BAC data by YCharts

It has been helpful that post-crisis litigation and fines seem to be in the rearview or at least out in the open, especially in the cases of Bank of America and JPMorgan. But the recent rally for the group may be more of an opportunity for profit taking than confirmation of a trend. 

First of all, the claim that rates are rising is debatable. Below is a chart reflecting the yield on the 10-year Treasury bond over the past decade. Opinions will differ -- but the downtrend appears firmly intact.

10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts

The only time rates have risen meaningfully in the past few years was immediately following Bernanke's infamous slap-on-the-wrist speech in May of 2013, warning investors that the quantitative easing spigot would assuredly not get stuck in the "on" position. This was six months prior to the Fed actually beginning to slow its bond-buying stimulus efforts.

Since Janet Yellen took over a year ago and QE has in fact been slowly and methodically withdrawn, rates have moved down across the board. Many investors banked too heavily on the Fed's role in keeping the long end of the curve down.

Similarly, when the Fed does eventually tighten it will be raising short-term rates, and there is no guarantee that the downward pressure on longer-term rates will not persist. Two major catalysts remain.

1. The search for yield is now global, and for "risk free" yield the U.S. Treasury Bond is the only game in town (where the "town" is Earth).

2. Dollar strength means other currencies weakening in relative terms; Treasuries need not move at all, necessarily, for foreign buyers to profit by owning them.

So what has prompted the rally in bank stocks?

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