Fears over rising interest rates dinged major stock market averages but benefited one sector that has been waiting to reap the benefits of higher yields.

Financials were the only positive major sector Thursday on the , with bank stocks the strongest performers. Specifically, community and regional institutions were the clear winners, as is typical in a rising-rate environment.

The group, as gauged by the SPDR S&P Regional Banking ETF, rose as much as 1.5 percent in morning trading before paring gains. The industry, which has badly lagged the market in 2018, is on pace for its best week since July.

Financials overall were up more than 1 percent after the first 90 minutes or so of trading.

Bond yields rose Thursday on the back of stronger economic data and comments from Federal Reserve Chairman Jerome Powell, who said after the closing bell Wednesday that the central bank was a long way from getting to a "neutral" interest rate, implying that more hikes were coming.

Every regional bank on the S&P 500 was in positive territory during morning trade, with KeyCorp, M&T Bank Corp and SVB Financial Group leading the way. Regional banks collectively have gained only about 2.5 percent in 2018, trailing the S&P 500's 8.5 percent rise.

— Gina Francolla contributed to this report.