These bank stocks are selling off

Bank stocks in the United States are on track to have their worst year so far so good, investors who bought into the industry on the hope that the Federal Reserve will raise rates would benefit the sector.

The Federal Reserve has hinted that it may start lowering its balance sheet this year, which has grown to approximately $8.8 trillion as a result of its quantitative easing program during the recession. According to a Deutsche note, which cited predictions from the bank's economists, the Fed's balance sheet may decline by roughly $1.5 trillion by the end of 2023 and about $3 trillion by 2025 as a result of quantitative tightening.

Following a strong start to the year, banking stocks have been hammered as fourth-quarter results fell short of forecasts and a series of lenders forecast that spending will continue to rise this year. While some analysts believe the stock market reaction has been exaggerated, others say the group will continue to be under pressure this year, despite the possibility that the Fed would hike rates three to four times in 2022.

As investors braced for a hawkish Fed, U.S. markets have seen violent swings recently, with the Nasdaq 100 plummeting into correction territory late last month.  The S&P 500 Index is predicted to surpass 5,000 points by the end of 2022, up 13% from February's level, as Deutsche Bank anticipates better-than-expected earnings and 4% growth in the economy to provide support, according to Bloomberg.

In January, the KBW Bank Index dropped as much as 3.8%, extending its downward slide to a sixth day since establishing a new high earlier in the month, the longest losing streak since January 2021. Over that period, the gauge has lost more than 12% of its value, falling into correction territory and for the second time in two months, falling below its 200-day moving average.

A wave of negative emotion has swept the broader stock market, adding to the selling pressure, as investors ditch risk assets following the Fed's meeting and as tensions between Russia and Ukraine continue to rise. Bond yields have also fallen in recent times, with the 10-year Treasury yield in the United States falling for four days in a row to 1.72 percent.