Europe's stock market plunge led by bank stocks is sending a signal that markets are desperate to open a recession-themed trade.

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Financial stocks were hit hard in a turbulent week that is coming to an end. The market fears that more U.S. and European banks could be in trouble as interest rates rise. Investors are reshuffling their portfolios in response to the risk of a hard landing in Europe, causing a wave of selling to spread from bank stocks to other sectors.

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Banks tend to bear the brunt of recession risk when it arises, as they are the conduit for credit flow throughout the economy. The recent turmoil has once again raised the possibility of a recession in Europe, something the market earlier this year was betting would not happen.

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"This has to happen sooner or later. Interest rate hikes will hurt the economy and we are seeing the first signs of that in the financial sector," said Alfonso Benito, chief investment officer at Dunas Capital, "Banks may start to reduce their lending business and that will translate into activity for companies. This could be the beginning of a recession."

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In addition to bank stocks, other growth-sensitive sectors fell Friday, with the energy, auto and mining sectors among the worst performers. The commercial real estate sector also fell. Investors have instead flocked to sectors seen as more resilient to a recession, such as food, pharmaceuticals and telecommunications stocks.

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Comdirect Bank strategist Andreas Lipkow said, "The cyclical stock sector is in a downward spiral as it is most closely related to the banking sector and could be affected by rounds two and three."

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Finally, indications are that fund managers are avoiding companies with high leverage and stock volatility. At the same time, they are pulling out of stocks that are highly focused on dividends and buybacks. This is a clear indication that investors expect companies to retain cash in the future, rather than pay out big cash to shareholders