Why Wall Street is so excited about bank stocks

What's happening: The KBW Bank Index has jumped almost 25% this year, while the broader S&P 500 has risen 10%. And analysts think shares of companies in the industry have even further to run.

"Financials are still extremely cheap relative to the market," Jonathan Golub, chief US equity strategist at Credit Suisse, told me. "While they've done well more recently, they've been lagging for a number of years."

A big test of the bank stock rally will come this week. JPMorgan Chase, Goldman Sachs and Wells Fargo report results on Wednesday, followed by Bank of America and Citi on Thursday and Morgan Stanley on Friday.

Golub thinks there are numerous reasons earnings could beat expectations, fueling more market momentum.

First is the economic recovery, which is expected to support lending activity. People have been racing to take out mortgages to buy homes, while businesses need capital as they make plans for a post-Covid world. Concerns that customers wouldn't be able to make good on loan payments have receded.

The outlook for interest rates is also important for bank stock performance. Concerns about inflation, which have boosted expectations for higher rates, may be a headwind for fast-growing technology companies. But they're triggering a brighter outlook for lenders, which can make more money off loans when rates are higher. An end to crisis-era policies would actually be good news for the sector.

Then there's the flood of deals that have forced Wall Street bankers into overdrive. Mergers and acquisitions have been on a tear, while companies have been eager to tap surging markets for fresh funding.

Remember: Refinitiv estimates that global investment banking fees topped $39 billion during the first quarter, the strongest period since record-keeping began in 2000.

"You have many things working in favor at the same time," Golub said, noting that financials are his favorite S&P 500 sector right now. The question this week, then: Can these companies can live up the hype?

It's a huge day for crypto investors

Shares of the cryptocurrency exchange Coinbase are about to start trading. For the crypto universe, it's a big moment.

Why it matters: The success of Coinbase's listing on the Nasdaq on Wednesday will serve as a crucial measure of investor interest in a corner of the market that's starting to catch the attention of Wall Street's more established players.

"The Coinbase IPO is potentially a watershed event for the crypto industry and will be something the Street will be laser focused on to gauge investor appetite," Wedbush Securities analyst Daniel Ives told clients. "Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of bitcoin and crypto for the coming years."

What's it worth? The Nasdaq set a reference price of $250 per share for the direct listing, which differs from a traditional initial public offering.

If shares ultimately trade at that price, the company would be valued at about $65 billion. That's on par with the valuation of Intercontinental Exchange, which owns the New York Stock Exchange.

Watch this space: The price of Bitcoin almost hit $64,900 on Wednesday, an all-time high. But it's not the only cryptocurrency rapidly gaining ground.

Ethereum also hit a record of more than $2,412, while Dogecoin — the cryptocurrency that started out as an internet parody and features the face of a Shiba Inu dog — surpassed 10 cents for the first time. That's right: A joke cryptocurrency is now worth more than a dime from the US Mint.

Practically everything in America is getting more expensive

Wall Street has been a bundle of nerves about potential spikes in inflation in recent months, looking toward the economic recovery and the effects of President Joe Biden's $1.9 trillion stimulus package.

On Tuesday, investors saw signs that higher prices are becoming a reality, my CNN Business colleague Anneken Tappe reports. Consumer prices for March rose 2.6% compared to the same month last year. They were lifted in particular by surging energy prices, including the cost of gasoline — which jumped 22.5% over the last 12 months ending in March.

Prices climbed 0.6% just between February and March. That was more than expected, as well as the largest increase since August 2012.

Of note: Transport costs are rising as people rush to rent cars, book flights and increasingly take public transit.

For investors, the question remains: Is this a temporary sugar high from the reopening of the economy, or the start of sustained price hikes that could eat into corporate profits and persuade consumers to stop spending?

At least for now, Wall Street is opting to look past the data. The mood, according to market analyst Jeffrey Halley of Oanda: "Nothing to see here, move along."

Up next

Bed Bath & Beyond, Goldman Sachs, JPMorgan Chase and Wells Fargo report results before US markets open.

Also today: Federal Reserve Chair Jerome Powell will be interviewed at the Economic Club of Washington at 12 p.m. ET.

Coming tomorrow: Was March a strong month for retailers as Americans banked $1,400 stimulus checks?