2 Financial Sector Stocks For This Year And Beyond

Bank Stocks

Cyclical stocks have come to life as market rotation is in full swing. And I like financial sector stocks best – these two in particular.

The vaccines are being distributed. In the next several months, the remaining lockdowns and restrictions should be lifted, at least mostly. That will unshackle the economy into a full recovery that most economists predict will deliver the best GDP growth in decades this year.

In case that isn’t enough, there are also trillions of dollars in stimulus floating around, and maybe even more on the way. And interest rates are still low. A booming economy, oodles of cash all over the place, and low-interest rates are combining to make an excellent environment for stocks, particularly the previously downtrodden cyclical companies.

Cyclical stocks have been on fire. The Financial Select Sector SPDR Fund (XLF), which represents the financial sector of the S&P 500, is up 44% since the vaccine announcement in November. The Energy Select Sector SPDR Fund (XLE) has soared a stratospheric 73% over the same period. There have also been impressive rallies in travel and leisure stocks, materials, industrials, and retail stocks.

The Main Street economy sectors were hurt the worst by the lockdowns during the pandemic. And they have the most to gain by the re-opening. The market loves industrial-strength rebounds. Despite the recent stellar performance, many of these stocks are still below pre-pandemic prices and should have more upside ahead of a very promising environment.

Of the re-opening beneficiaries, I like the financial sector best. Financial stocks stand to benefit in a full recovery as economic activity picks up and there is more money to invest. As well, banks and other financial companies benefit from higher interest rates. And rates are still well below pre-pandemic levels and are all but certain to rise in a booming economy. In fact, rates are rising already.

But this sector should have a longer-term rebound as well. Financials stocks didn’t just get beaten up by the pandemic; that sector has been on the outs for most of the last 14 years. It was at the epicenter of the financial crisis. Stocks were slaughtered in that bear market and then had to contend with a regulatory onslaught and investor skittishness.

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