Does the financial sector know that an interest rate hike is imminent? That is how we at InvestingHaven interpret strength in the financial sector ETF XLF. Provided our interpretation is correct we see 4 banking stocks which deserve a BUY rating in 2018.
As the last two trading weeks of 2017 kick in the investment community is fully focused on the Federal Reserve’s last rate decision of the year. Mainstream financial news articles are all over the place; they are full of detailed economic analysis with projections of ramifications in case a rate hike takes place or not. Just a few examples to illustrate this: see here, here and here.
With so many mixed opinions, and even feelings, vis-à -vis a rate hike, InvestingHaven’s research team did what it always does: stay cool, look at things in an unbiased way, and get to the core data points that are important for investors. As always, our team chooses to stay outside of the frenzy, and continue to emphasize on the ultimate compass for investors: the charts.
The rationale behind our stance is that price will move in the direction it wants to move in the long run. The outcome of one rate decision is at best going to result in a knee-jerk reaction after which the price will continue to move in line with the underlying trend.
Needless to say, there has been a rotation into financial stocks, and, in particular, banking stocks, which we already highlighted more than a year ago. 18 months ago we wrote Financials Setting Up For Very Strong Rally and more than a year ago we wrote Financial Stocks Will Be Outperformers. A trend is a trend and remains a trend until proven otherwise.
4 banking stocks which deserve a buy rating in 2018
The monthly XLF ETF shown below had a steep collapse in Oct 2007 as the credit default swap bubble burst. By early 2009, the Federal Reserve stepped in and proposed a gigantic package of QE with ~0% interest rate that ‘saved’ the financial sector (at least, that is how they present it). The path to recovery encountered 2 significant corrections: one in 2011 and one in 2015. We project that the price of XLF will hit 31 points by mid 2018 unless a major stock market crash hits.
