Note On the Financial Sector

My reply to an inquiry last evening regarding the somewhat surprising lackluster of financials this year, and on the impact of rising interest rates:

Rising interest rates at this stage of the cycle are normal and, actually, important (it’s a smart/good thing). The market’s recent struggle is more about other pressures (fear of trade war hitting the economy while the Fed is trying to better position rates so they can stimulate during the next recession, as well as to keep inflation moderate). As long as the economy remains relatively strong, rising rates (from these levels) are not problematic. What banks need is for longer-term rates to rise a bit more (concerns about global growth in a trade war environment have kept somewhat of a lid on longer-term rates). Financials are far and away the cheapest sector right now based on earnings relative to share price… prospects are good as long as we get smart on trade while the economy is still in growth mode.


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