“You'll probably some continued leakage in these stocks, but I think that will also be a cue for people to consider whether that [recession] news is already largely accounted for in these names,” O’Hare says.
Cannon points out that banks might be unfairly tarred, noting they have some good fundamentals such as having a strong capital position. Consumers’ balance sheets are relatively healthy, too, he adds.
What should advisors do about bank ETFs? Part of it depends on the their longer-term view about earnings. Banks are cheap on a historical price-to-earnings basis, Cannon says, so the ETFs can be a bargain if an advisor feels earnings won’t go much lower.
O’Hare advises prudence, noting there could be some pops because these names were heavily sold, but those will be short-lived.
“The market hasn't convinced itself yet that we're at a bottom here or that earnings estimates have been marked down enough to account for a slower period of economic growth,” he says.