Bank stocks might be telling us something. Ignore at your peril.

The S&P is up nearly 2% this year. However, one look at the KBW Bank index will tell you that banks are lagging the market heavily - down 34.3% over the same period. Granted, the banks don't have the ideal environment in which to operate given how they are having to grapple with low interest rates and ballooning loan loses from the pandemic. Add to this that the polls increasingly point to a democratic victory and the associated fear this brings of strict regulation on the sector - and there is yet another headwind for the banks.

Many of the large banks had excellent quarters, in particular those with capital market operations and they have also been helped by the Fed who have bought up the entire distressed debt sector - financial stress conditions should just not be a true concern for investors right now. Add to this that the GDP estimate for Q3 is almost 12%, and the refusal of bank stocks to take a leg higher could well be telling us something.

So what is it that they may be telling us? Well it may just be an indication that there are larger structural issues that the market is ignoring, and that the Fed's action is not enough - despite what new highs in the Nasdaq and S&P may suggest. Looking back, we had low yields in 2016 and the banks rallied along with the rest of the market, as they did when the market set new highs in 2000, 2007 and then 2015. Thus time they are being left behind.

I was always taught that markets are forward looking. If that is the case then what should we be taking from the banks? Has liquidity got the better of many of these tech, software and stay-at-home names? Is this truly a bear market rally? Perhaps. It is however still plausible that the banks will all rally if a new stimulus package is announced in the coming days.

For now though, maybe we should be listening to bank stocks. Although they may not be yielding great returns, their advice just might.