Shares of JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Wells Fargo Corp. (WFC) all saw a significant dip Friday despite posting earnings results that beat consensus estimates for both top  and bottom line numbers. Shares of JPM closed down 2.7% while WFC sank 3.4% and C fell 1.6%.

Meanwhile, the Street has continued to highlight financials' strength in 2018 as they benefit from factors including rising interest rates, looser regulation and a refocus on tech titans, tax-cut-fueled stock buybacks and a relative immunity from rising global trade tensions. In Q1, analysts expected the S&P 500 to show profit growth of 17% year-over-year (YOY), while banks were projected to jump 28%.  (See also: 10 Financial Stocks Poised to Outperform.)

The sell-off suggests that banks failed to meet lofty targets demonstrated by investor confidence in financials over the past five years, driving the sector up 90% over that time and accelerating gains in the past year. Rising rates, which were expected to provide a strong boost to banks, worked to increase interest income 10% for JPM and C in Q1, yet interest expenses were up about 50%. Despite historically low levels of unemployment and a strong economy, loan growth was lackluster, as JPM's lending business slumped 0.2% from the previous three quarters, WFC loans slumped 1% and Citigroup's lending gained just 1%, attributed to an initiative to expand its struggling credit card business. Higher rates failed to translate into a jump in lending profits, with net interest margins remaining in the 3% range. While investors may have looked at a surge in market volatility as translating into higher trading profits, the less-profitable equity trading businesses were a bright spot. 

The story suggests that while interest rates were at historic lows, individuals took advantage and refinanced, perhaps borrowing even more than they needed. This lull in loan demand explains a weakness across the board for the banks' mortgage businesses in Q1. 

Ups and Downs

Individual stories also played into Friday's weakness. JPMorgan's decline comes against the backdrop of the Street's overall bullish outlook on the stock. Near-uniformly positive sentiment is "one of the things that is not in the banks' favor right now," said Smead Capital Management portfolio manager Tony Scherrer in an interview with Barron's.

As for WFC, which has seen its stock crash 16.1% year-to-date (YTD), sharply underperforming the S&P 500's 0.7% decline over the same period, the weakness isn’t so much of a surprise. The San Francisco-based bank confirmed a $1 billion settlement proposed by federal regulators in connection with its alleged auto insurance and mortgage lending abuses. America's third-largest lender has seen its reputation hit by a series of scandals dating back to September 2016, when concerns surfaced regarding its sales practices and a massive fake-accounts scandal. Wells Fargo indicated in a supplemental earnings statement that the bank cannot currently "predict final resolution of the [Consumer Financial Protection Bureau/Office of the Comptroller of the Currency] matter and cannot reasonably estimate out related loss contingency."

Wells Fargo indicated that it may have to restate earnings. The bank posted EPS of $1.12 on revenue of $21.9 billion, reflecting a dip from the year-ago period of $22.3 billion in sales, yet better than analysts' expectations. (See also: 4 Bank Stocks to Outperform in 2018: Oppenheimer.)

Shares of Charlotte, North Carolina-based Bank of America Corp. (BAC) are up about 1% in pre-market on Monday after beating analysts' top and bottom line forecasts.