The Best Way to Trade Bank Stocks Now That the Outlook is Improving

Market participants are turning their attention to the financial sector as conditions begin to look more favorable. At the same time, investors are bracing for key revisions to U.S. labor statistics set to be released later today.

‍

Paul Christopher of Wells Fargo highlighted financials as his top pick on CNBC’s Worldwide Exchange, citing recent moves in Treasury yields as a potential catalyst for the sector.

‍

“Since late July, the yield on the 2-year Treasury note a proxy for short-term rates has dropped nearly half a percentage point, while the 10-year yield has only declined about a quarter point,” Christopher explained. “Banks set their deposit rates based on those short-term yields, so as those fall more sharply than longer-term yields, the result is stronger net interest margins. That dynamic gives us a much more constructive outlook on financials going forward.”

‍

Despite these tailwinds, financial stocks have lagged behind the broader market both year-to-date and since their April lows. However, momentum could be shifting. On Monday, Wolfe Research named financials its top sector pick, largely on expectations that the yield curve will steepen a development that typically supports bank profitability.

‍

At 10 a.m. ET, the Bureau of Labor Statistics will release its annual revision to nonfarm payroll data, covering April 2024 through March of this year. Analysts broadly expect a downward adjustment.

‍

Wells Fargo is projecting a reduction of around 475,000 jobs, while Bank of America estimates the revision could be as high as 1 million fewer jobs.

‍

This comes just days after August’s payroll report showed a weaker-than-expected gain of only 22,000 jobs. The question now is whether the upcoming revision could meaningfully sway markets.

‍

Seema Shah, chief global strategist at Principal Asset Management, thinks the impact will likely be muted unless the number is dramatically worse than anticipated.

‍

“It doesn’t really change the picture of where we are now,” Shah said. “It may give the Fed more evidence of underlying labor market weakness, which reinforces the case for cutting rates next week, but that’s already largely priced in. Unless the revision comes in above 1.2 million jobs lost, it’s unlikely to move markets.”

‍

Wells Fargo’s Christopher echoed that view but noted the potential for a sharp market reaction if the revision lands at either extreme.

‍

“Could it be market moving? Yes, if it’s closer to the top or bottom end of estimates,” he said. “But regardless, it’s going to be a negative number. That in itself supports a steeper yield curve and a general decline in interest rates.”

‍

Beyond macroeconomic developments, Apple is set to take center stage today with its much-anticipated product showcase. The company is expected to unveil the iPhone 17, alongside updates to its Apple Watch and AirPods lineup.

‍

This is a critical event for Apple, given that more than half of its revenue about 51% still comes from iPhone sales.

‍

That said, Apple’s stock performance on launch days has historically been unpredictable. After the release of the iPhone 16 in 2024, the stock ended the trading day flat, underscoring that product announcements don’t always translate into immediate market gains.

‍

Today’s market narrative is shaped by three key themes: a brighter outlook for financials as yield dynamics improve, anticipation around labor market revisions that could reinforce Fed policy expectations, and the spotlight on Apple’s latest product cycle.

‍

For investors, financial stocks may offer renewed potential if net interest margins continue to expand. Meanwhile, the jobs revision is unlikely to shift the broader narrative unless it delivers a significant surprise. And while Apple’s product events always generate buzz, history suggests the market reaction can be more subdued than headlines imply.

‍

With all eyes on both economic data and corporate developments, traders may find today’s session pivotal in setting the tone for September.

‍