Forget tech and utilities. There’s about to be a new best sector for 2024

Bank stocks are making a late push to be the best buy of the year for equity investors. The financial sector has outperformed in recent weeks and is now firmly one of the best-performing groups. The Financial Select Sector SPDR Fund (XLF) rose again on Wednesday and is now up 26% year to date. That puts it above the SPDR fund for communication services ( XLC ) and within striking distance of the one for utilities ( XLU ). XLF YTD mountain Financial stocks are one of the best performing sectors this year. Looking under the hood, the rally seems broad and deep. “Nearly 70% of the S & P Banks traded to a 20-day high yesterday (momentum is alive) and > 90% of issues have traded north of their respective 200-day moving average all year (sturdy foundation),” Chris Verrone of Strategas said in a note to clients Wednesday. There are several factors working in the favor of banks. For one, lower interest rates takes some of the pressure off the balance sheets of the firms that were caught off guard by the Federal Reserve hikes that began in 2022, leaving them with on-paper losses for their bond books. The resilience of the U.S. economy also helps banks, which benefit from high spending and low default rates. More recently, bank earnings are off to a strong start. The major banks have all beaten estimates for earnings per share for the third quarter, with the latest being Morgan Stanley on Wednesday morning . There is also the possibility that some of the smaller banks are getting an election-related bump, according to Verrone. “It’s also not lost on us that the Regionals were pronounced outperformers in the 8 weeks post-2016 election … as the betting odds have moved sharply over recent days, perhaps the market is attempting to get in front of this again,” the Strategas note said.