As US Treasury yields continued to climb, the pressure on US bank stocks intensified further.

During intraday trading on Thursday, October 1, US Eastern Time, the benchmark KBW Bank Index fell as much as 2.4%, hitting an intraday low not seen since late May. All components of the index declined, with Citigroup (NYSE: C) leading the losses, dropping as much as 4.6% intraday, its largest single-day intraday decline since July. Investors are reassessing the impact of persistently rising US Treasury yields on the US economy and on banking operations.

As of Thursday's intraday session, the KBW Bank Index had retreated about 14% from its mid-August high. Based on the conventional definition of a technical correction as a decline of 10% from a recent high, the index has not only entered correction territory but the 14% pullback means the correction has deepened further.

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

Bank stocks under broad pressure, with financial sector posting worst relative September performance since 1990

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

Capital One (NYSE: COF) and Wells Fargo (NYSE: WFC) have each fallen more than 15% year-to-date; over the past month, Bank of America (NYSE: BAC), Goldman Sachs (NYSE: GS), and Morgan Stanley (NYSE: MS) have also each declined more than 11%.

Truist analyst Brian Foran described this September as an "unforgettable September" for financial stocks, noting that the financial sector's relative performance versus other industries was the worst for the same period since 1990.

Foran believes the current weakness in financial stocks has actually persisted for a considerable time. He traces this round of relative underperformance by financial stocks versus the broader market back to April 2025 and points out that the current relative performance of the financial sector bears some resemblance to the dot-com bubble era.

However, he also noted an important difference between the current market and past periods of financial stock weakness: analyst earnings estimate revisions for financial companies are actually still positive at present.

Foran also believes that it is not only the financial sector that is under pressure. The AI boom is driving capital to concentrate heavily in a handful of industries, with other sectors such as financials not participating in this rally to the same degree.

High rates combined with AI concerns leave bank stocks facing multiple pressures

Persistently rising US Treasury yields are becoming an important backdrop to the recent pressure on bank stocks.

As long-term US Treasury yields continue to climb, 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. At the same time, concerns that AI may alter traditional banking business models have added further pressure on bank stocks.

However, there are differing views within the market regarding AI's potential impact.

Wells Fargo senior banking analyst Mike Mayo said earlier this week that market concerns about the threat of AI agents, the potential impact of the November US midterm elections, and rising interest rates have been "overdone."

Mayo believes that as large banks report earnings in succession, the AI "panic trade" in bank stocks may reverse. He particularly emphasized that banks possess an advantage that AI cannot easily replace in the short term — public "trust in banks is the moat for deposits."

This means that although AI may change how banks operate, their staffing structures, and some financial services, core businesses such as deposits, credit, and customer relationships are not necessarily going to be rapidly replaced by AI agents.

Major bank earnings season kicks off on October 13, with profitability becoming a key test

Next, investors will turn their attention to US large banks' third-quarter earnings.

The US large bank earnings season will begin on October 13, with major banks such as JPMorgan Chase (NYSE: JPM) among the first to report results. At that time, net interest margins, loan demand, deposit costs, credit quality, and investment banking performance will all become key indicators for the market in judging the resilience of bank profitability.

Particularly noteworthy is that, even as bank stocks have clearly retreated from their August highs, analyst earnings expectations have not deteriorated in tandem. This means the upcoming earnings reports will further test whether the market's concerns about high interest rates, AI, and the macroeconomy have already been priced into share prices.

Currently, bank stocks are in a rather unusual market environment: on one hand, US Treasury yields continue to climb, re-elevating market vigilance about economic and financial conditions; on the other hand, bank earnings expectations have not yet shown significant deterioration, while the AI boom is further driving capital concentration into a small number of technology sectors.

As the large bank earnings season opens on October 13, whether bank results can provide new fundamental clues will become an important checkpoint for the market in observing whether this round of bank stock correction will continue to deepen.