Are U.S. Financials a further sign of a market top?

  • Many argue that the global economy is in a period of synchronized growth and that higher rates will positively impact financials (overweight cyclicals vs defensives)
  • However, the market is showing a different picture, in particular the FINANCIAL SELECT SECTOR SPDR ETF (XLF US Equity – see above) which broke major support levels and reached YTD lows
  • The price discovery process is always leading any economic changes, and thus, this development does not fit the global growth narrative and is a sign of further market weakness
  • This development is especially threatening for European banks (EURO STOXX Banks Price EUR – see below) as they are still hovering around alltime lows and do not have a cushion for weathering a crisis
  • Trade idea: Reduce global exposure to banking stocks and in case of a more risk-seeking approach, build small short position