$XLF Is the Financial Pullback Something More? (includes video)

U.S. financial stocks have been in pullback mode this week despite the SPX moving higher. Considering that financial stocks had been a big boost to market gains over the last several months, this could be concerning.

The XLF is down about 3% - and regional banks KRE down 6% - since the recent top. Let's put this move into context, shall we?

As MacroView as posted before, financial stocks really began to rally in early Sept just as the 10s/fed funds curve bottoms around 90 basis points. The correlation has been rather strong between .65 to .93.

In our view, the curve and financials rallied on two things: markets were trying to price higher inflation (we saw this as the long-end steepened) vis-a-vie higher commodity prices. Then, markets were anticipating Pres . Trump nominating John Taylor as the next fed chair, who would be uber hawkish.

We were happy to take the other side of that bet. Powell is dovish. In turn, we saw yields and copper , particularly, head lower.

The 10s/fed funds rate topped out at 131 basis points and began to trade lower on the above events. Price action in XLF and KRE weakened and the pullback ensued.

Click the here to listen to where support may be found and whether or not financials and the curve will rebound.

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