As the bank earnings flurry rolls on this week, the financials sector
should be able to play catch-up and return to being one of the best-performing
groups in the market.
If the market is to continue its march higher and show positive returns this
year, I think the financial stocks will need to step up and become one of the
leading sectors ahead.
Consider where the financials are trading
right now. The sector is the worst-performing S&P 500 sector in one month's
time; on the year, the group is off nearly 2 percent, under-performing the
market. This standing should improve as earnings come in.
Financial stocks and banking should thrive in this environment, given the
economy and consumer balance sheets are strong, which altogether should spur
loan growth and lending. Interest rates, too, have risen, and this should help
banks' net interest income revenue.
Meanwhile, increased market volatility should also bode well for banks' trading
activity, along with strong merger and acquisition activity. And, of course,
regulatory restrictions are easing in the banking industry.
At the same time, headwinds exist. The yield curve has flattened as investors
have rushed to Treasurys as a safe haven. I do believe this is temporary, and
that the bank stocks' pullback is a solid buying opportunity.
How To Play The Space
If investors are interested in buying the
sector but not comfortable in picking individual stocks, investors can utilize
exchange-traded funds, like the XLF (for larger-cap names) and the KBWR (for regional banks), to gain exposure to the sector.
Both should perform well if the banking sector's fundamentals remain sound.
here for the original article from CNBC.