despite their fortress balance sheets and stress tests us’s banks have been weakened this year as inflation and the prospects of a recession weigh on the mightiest on wall street investors have flashed a big red light at the six largest publicly traded us banks which have underperformed the broad market and erased a whopping 257 billion out of their combined 144 trillion market cap at the start of the year see chart the massive wealth evaporation has encompassed dow jones industrial average djia components goldman sachs group inc gs down 181 yeartodate and jpmorgan chase  co jpm down 223 other members of the ailing stock megaclub include wells fargo  co down 71 bank of america down 181 citigroup c down 168 and morgan stanley ms down 161 except for wells fargo the group’s performance is worse than the 84 percent yeartodate loss of the dow 30 and the 122 loss by the s p 500 spx  in the broader banking and financial sector the financial select sector spdr etf xlf is down 96 and the kbw nasdaq bank index bkx is off about 15 with headwinds from the ukraine war inflation on the rise market volatility and the fed poised to raise interest rates capital markets have seized up at least in terms of initial public offerings and other dealmaking with their investment banking activities down and their capital ratios impacted by price drops in the treasury market bank earnings moved lower in the first quarter against a bumper crop of dealmaking and recovery in the first quarter of 2021 ellen hazen chief market strategist and portfolio manager at fl putnam investment management co said the bank’s thinner capital ratios have weighed on stocks because they raise the fear that credit quality could deteriorate in a recession “the conventional wisdom was that bank stocks would benefit from a steeper yield curve” hazen said “although the curve has gotten steeper it hasn’t helped bank stocks that’s because of concerns over an economic slowdown this reflects the worry that the fed may overshoot and in its desire to definitively quash inflation and it will tip the economy into a recession” the current environment marks a sharp reversal from 2021 when bank stocks rallied on expectations that higher interest rates would boost net interest income however as 2022 got under way inflation worsened with the ukraine war and other factors the fed’s expected interest rate hikes continue to create jitters around a drop in economic activity impacting banks this worry has outweighed any expected boost in net interest income that may come about as interest rates rise also read the ‘fed put’ is gone for now top wall street strategist says moreover as banks channel more capital to keep their capital ratios in line with regulatory requirements they may trim the share buybacks that have been supporting growth in earnings per share investors have seized on the tradition of a recession taking place 12 to 18 months after the yield curve between the threeyear and 10year treasurys became inverted earlier this year deutsche bank analyst matt o’connor said in a wednesday research note that bank stocks appear to be pricing in about a 50 chance of a recession as of yesterday’s trades bank stocks have fallen 21 compared to a 30 drop on average during 27 bear markets since 1966 in the severe covid19 stock selloff of march 2020 bank stocks fell 51 by comparison o’connor said deutsche bank remains positive on bank stocks and lifted his 2022 earnings per share estimates by 6 on average “markets are increasingly worried a recession or material slow down is coming to the us economy…yet loan growth is accelerating and there’s no sign of banks tightening underwriting standards” he said among the megabanks wells fargo wfc and bank of america bac remain his top picks he noted that bank of america signaled that it expects secondquarter net interest income to rise by 650 million over the first quarter with sequential growth expected in the second half of the year wells fargo expects its fiscal 2022 net interest income to rise in the midteens from 2021’s level from loan growth and higher than expected rate increases wells fargo also forecasts loan growth in the mid single digits in the fourth quarter putnam’s hazen remains bullish on bank of america on expectations of greater net interest income benign credit metrics and margin growth on its net interest income the bank also has wide exposure to the us consumer which has grown collective deposit balances by 40 since precovid19 “consumers are in a very strong space” hazen said also read economy shrinks 14 in first quarter gdp shows but mainly due to record us trade deficit