Bank Stocks Cool Off for the Summer

NEW YORK (TheStreet) -- After a roaring start to the year, bank stocks are losing steam, underperforming the broader markets in the second quarter so far, despite a mostly positive earnings season.

The KBW Bank Index has slipped 2.9% since April 13, which marked the beginning of the bank earnings season, while the S&P 500 has lost about 1.5%.

Bank of America(BAC) , which led the market rally in the first quarter has shed 17% in the past month alone. Citigroup(C) , which also benefited from the "risk-on" rally in the early part of the year has shed about 10%.

Meanwhile, safer bets such as JPMorgan Chase(JPM) and Wells Fargo(WFC) have managed to contain their weakness relatively better than their large-cap peers, losing only 4% and 1% respectively.

This is starting to look eerily like 2011, when bank stocks performed well in the early part of the year, only to become the worst performers of the year as European debt crisis intensified and macro-economic data took a turn for the worse.

Should investors cash their chips and run?

At least some of the weakness in bank stocks can be explained by the recent string of lackluster macro-economic data and resurgent fears about the European debt crisis.

Bank stocks are highly correlated to economic news, so the volatility associated with macro headlines is something most investors learn to live with.

For the big money center and universal banks such as JPMorgan Chase and Bank of America, however, the macro-economic uncertainty also takes a toll on trading revenues. That in turn could affect earnings estimates.

Analysts have raised estimates for the biggest banks since they reported first quarter results on the back of better-than-expected improvement in trading revenues. But already, the outlook for capital markets is starting to dim.