The S&P 500 returned to positive ytd performance territory as of Tuesday’s close, with the Technology and Consumer Discretionary sectors leading the charge higher.

Here’s where things stand for the index and its sectors ytd through Tuesday’s close: Technology (7.5%), Consumer Discretionary (5.3), S&P 500 (1.2), Health Care (0.6), Energy (0.3), Industrials (-0.7), Financials (-1.4), Materials (-1.6), Utilities (-3.3), Real Estate (-5.9), Consumer Staples (-6.6), and Telecom Services (-7.9) (Fig. 1).

Here’s how the S&P 500’s 11 sectors have performed since the market bottomed on February 8: Technology (10.5%), Energy (8.6), Utilities (7.3), Real Estate (5.5), S&P 500 (4.9), Consumer Discretionary (3.8), Materials (3.6), Industrials (3.2), Health Care (2.9), Financials (1.6), Telecom Services (-0.1), and Consumer Staples (-0.6).

Perhaps it’s just early days in this latest market bounce, but the sectors leading the way since the February bottom aren’t those you’d normally expect if all were well in the world. The market’s leadership, outside of Technology and Energy, is coming from sectors that benefit from interest rates that have fallen slightly since the 10-year Treasury yield peaked on February 21 at 2.94% and now stands at 2.87% (Fig. 2).

While the 10-year yield has declined, the two-year Treasury yield has risen, leaving the spread between the two much narrower than expected (Fig. 3). The flatter curve combined with slower-than-expected loan growth have hurt financial stocks despite a pretty spectacular earnings outlook thanks to lower tax rates (Fig. 4).

Here are a few examples of how the Financials are faring in recent days:

(1) Comerica’s Q1 adjusted earnings per share came in at $1.54, up from $1.02 a year ago, and its net interest margin expanded to 3.41% from 2.85% in Q1-2017. But investors opted to focus on the bank’s lack of loan growth. Comerica’s total loans outstanding, at $49.2 billion in Q1, was flat compared to Q4. The company blamed the lack of loan growth on seasonality in mortgage banking and a decline in corporate banking. Comerica’s stock fell 3.6% on Tuesday when the broader market rallied; however, it remains up 6.8% ytd through Tuesday’s close.

(2) Wall Street’s brokers also reported strong earnings but were punished by investors who were disappointed by the amount of capital the firms might return to investors. “On Tuesday, Goldman said it wouldn’t repurchase any stock in the second quarter and would instead use its cash to fund growth initiatives like consumer banking and corporate lending,” a 4/18 WSJ article reported. Goldman Sachs’ shares dropped 1.7% Tuesday even though the firm’s earnings beat expectations.

(3) On Wednesday, Morgan Stanley’s earnings were stronger than expected, but the firm spooked investors by warning that the Federal Reserve’s 2018 stress test is more severe than in the past. The implication: Morgan may have to retain more capital instead of using it to fund buybacks or to increase dividends. After selling off a bit on Tuesday, shares recovered on Wednesday.

(4) The S&P 500 Investment Banking & Brokerage industry has rallied sharply during the course of the economic recovery and its forward P/E, at a recent 12.9, is now higher than it has been during the course of the recovery (Fig. 5). That multiple is likely sustainable as long as the industry can continue to generate strong earnings growth. Forward earnings are expected to grow 18.1%.

(5) The forward P/E of 13.2 for the S&P 500 Regional Banks is also near a post-recovery high (Fig. 6). The industry’s forward P/E is actually below the forward earnings growth rate of 20.1% that analysts are forecasting. Unless the yield curve steepens, caution may be warranted in both industries.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.