There are certain sectors you should always keep a close eye on…
They don’t have to be a large chunk of your portfolio. But they can still give you powerful insight into what’s going on in the real economy – and the overall market.
Financial stocks are one example. Because they’re tightly linked to consumers, they tend to roll over ahead of the broad market… So they’re often an early warning sign.
The opposite is also true… When these stocks outperform, it’s a good sign for the economy and the market. And that’s exactly what we’re seeing right now.
Financials crushed the overall market over a recent three-month stretch. And according to history, that means both this sector and the broad market can keep rallying.
Financial Stocks Are Set for a 19% Rally
Financials may not be the most talked-about group of stocks. But they’re the second-largest sector in the S&P 500 Index. So they’re important to the overall market.
Again, these companies offer services to consumers. When they’re doing well, it usually means the overall economy is too.
That’s why it’s wise to watch periods of outperformance like the one we just lived through.
The broad market hasn’t done much over the past three months. But financials shot up double digits over a recent three-month stretch… outperforming the S&P 500 by 11 percentage points. Take a look…
While the market has effectively gone nowhere, financials have been rising fast.
This is a rare level of outperformance. We’ve only seen eight other unique instances since 1989. And those were darn good times to buy stocks. Take a look…
The S&P 500 is up 8.7% a year over the past 37 years. But you could’ve done even better if you’d bought after periods like this one.
Similar setups led to gains of 9.1% in six months and 12.8% over a year. That’s a healthy level of outperformance. And it shows the value of watching financials.
What’s more, these setups don’t just signal gains for the overall market. They also show that financials will keep rising. Here’s what the sector did after past instances…
Financials have underperformed the broad market over the long term. But they tend to soar after these rare setups.
Similar situations led to gains of 14.1% in six months and 19.4% over a year. That’s nearly triple the typical one-year gain for this sector. And, of course, it means that financial stocks continued to outperform the overall market.
This is a powerful setup. It shows the economy is strong, which is good for all stocks.
It also means you should probably think about owning financial stocks today. And more broadly, you want to remain bullish – and stay long.
Good investing,
Brett Eversole
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Source: Daily Wealth
