Financial Select Sector SPDR Fund (XLF)

The pillars of Trump’s platform had infrastructure, lower taxes and reduced regulations. It is pretty clear that infrastructure and lower taxes is going to be, if ever, some time in the future. However, reduced regulations is something that can be done. They said that regulations don’t necessarily have to change the laws, they just have to reinterpret existing laws. Trump’s overall impact on the global economy won’t be as large as people had thought, but his sectorial impact will be massive. Banks are incredibly under owned and under loved, and extremely oversold.

He is very positive on the banks. This gives you more diversification than owning the individual banks. If they make changes to the Dodd Franks, where they seem to be moving, that would be good. Also, higher interest rates are very good for banks. This is not a bad investment.

He was looking to buy ZUB-T when it was testing multi-month rallies. This rally is about expected rate hikes from the Fed and he expects they are over. He would sell into strength on the banks.

The US financials have lagged the market over the last few years. They are now trading at a massive discount. This is a long term theme that he thinks is very interesting. If Trump reduces regulation, then US banks should get up to the level of the Canadian banks. He thinks the Fed is way behind in rising interest rates.

(Top Pick Dec 13/16, Up 4.03%) This happened outside his window of seasonal strength by more than a month. He got stopped out back in January. We need another move up, otherwise the rally is over.

A good sector to be in over the next few months. There may be some back filling along the way. A lot of relief has been coming into the sector expecting the regulations.

He has been overweight the financial sector through this ETF. You don’t want to be a contrarian here. Trump is engineering animal spirits. Capital spending will start to happen and you want to be in banks during this period. He likes it and is long.

Conditions are ripe for the US banks. His 1^st attraction to the banking sector was when he started noticing that on conference calls, the CEO’s on some of the big names weren’t having conversations about litigations anymore and the ghosts of 2008. A steeper yield curve is going to help the situation. Be patient on this.

They just took out the REIT sector yesterday, and there were good reasons to do that. He likes US banks, and going Long at this stage makes sense.

SPDR Financial (XLF-N) or SPDR S&P Regional Banking? He likes this more because it has the larger cap more diversified names that are in capital markets, investment management, security management and wealth management. Interest rates will eventually move higher, but will stay low for long, and you want to have companies that are more diversified.

(A Top Pick Dec 15/15. Down 11.74%.) He was stopped out in January. You want to see this outperformed the S&P 500 for a few days in a row. If the financials are outperforming, that usually means the rally has lagged, and he haven’t seen that yet.

Very, very disappointing, but at a very attractive level. These stocks have to go if the market is going to go. Doesn’t think they are going to go anytime soon, so doesn’t expect the Dow to do anything but build a base for a while.

US financials tend to do well at this time of the year; Dec 15 until April 13. Tends to outperform the S&P 500 during this time period. A sector that can definitely benefit from rising interest rates.

(A Top Pick July 23/14. Up 5.16%.) Really likes the financial sector. Interest rates moving up is a positive for banks. The economy, labour market and housing getting better are all positives. Still a Buy.

Some people argue that an interest rate increase is going to be bullish for American banks, because they should see steepness in the yield curve, which is positive for the banks. He is not all that certain. In this case you could actually see the yield curve flatten, which would be a major negative. The real driver of the banks is going to be increased loan demand growth and investment banking fees from M&A. The space is a good one to be in, but he thinks the market is vulnerable to a pullback here. He would prefer to own one good bank, such as Wells Fargo (WFC-N), over a basket of average investments.