Financials Sector Deep Dive - 1/26/2024
What's not to like?
So much for that banking crisis.
Back in March 2023, we all became experts on held-to-maturity securities and unrealized losses on bank balance sheets as we waded through the aftermath of some of the largest bank failures in history. The crisis proved to be short-lived.
Silicon Valley Bank failed on March 10, and the Financials sector found a bottom one week later on March 17. Since then, the Financials have been indistinguishable from the rest of the market:
Bank failures were no doubt concerning, but it was remarkable how well the sector held up even during the worst of the crisis. The Financials never even broke below their pre-COVID highs - a level that has a bit of historical significance.
If Financials were still hanging above their 2007 highs and even their October 2022 lows, we mused, how bad could things really have be?
Now, the Financials are closer to breaking out to new highs than they are falling to new lows.
And compared directly to the S&P 500, we’re seeing more constructive action than we’ve seen in quite some time. The Financials/SPX ratio is above its 200-day and just found support at a key, one-year rotational level. That sets the stage for outperformance in the weeks and months ahead.
Future leadership from the Financials fits with the strength we’re seeing below the surface. More than 90% of stocks in the sector are above there 50, 100, and 200-day moving averages. No other sector can say the same:
We’ve got an Overweight rating on the Financials, and we see no reason to change that. The Financials are innocent until proven guilty.