Financials Ready to Deposit Gains for Investors?

Seasonality suggests that may not be the case. However no one should base their investment thesis on this alone, and as always look for best of breed individual situations. In any group that leads or bleeds, an astute stock picker should prevail. For example in the overall banking space PYPL is now closing in on all time highs, while a name like MC still trades 44% off most recent 52 week highs. The old adage “a rising tide lifts all boats” is accurate, but the shrewd trader will identify the names that advance 50-100% or more, while the average player will be satisfied with the mediocre return. If you trade the averages, or ETFs, you get average returns. Do the homework.

Russell 2000/Financial Sector Relationship:

The XLF did start ’19 on the right foot with a weekly gain last week of 2.8%, bettered only by energy, communications and discretionary (although it was just the eight best of 11 major S&P sectors in 2018). Perhaps a good way to gauge the potential for a positive snapback the rest of this year, would be to observe the Russell 2000. Not only is that small cap benchmark usually a good leading indicator of risk appetite, but its heaviest weighting happens to be the financials (chart below). Maybe it is not a coincidence that the financials began ’19 well, as the Russell 2000 is higher YTD by 7%, compared to the Nasdaq, S&P 500 and the Dow up 5.2, 3.4 and 2.7% respectively.

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