Summary
Impressive Q2 '18 beat driven by increased interest margins and efficiency.
Macroeconomic risks like US-China trade war and Brazil real devaluation fears have put downward pressure on banks.
Recent mild analyst ratings have further pushed shares into oversold territory, offering investors a buying opportunity.
It's been a weird past several months for financial stocks. The 10 year-2 year yield curve sits at 0.23 with an ugly downwards chart. Saber-rattling between the US and China has sparked fears of a trade war and potential economic downturns. Emerging markets have been hit hard recently, and Turkey raised interest rates to 24%. The global economy, while still strong here in the US, looks shaky and cautious.
Image from Bloomberg 9/13/18
US financial stocks have been in a funk for most of 2018, trading relatively sideways overall. The Financial Select Sector SPDR ETF (XLF) is a good general gauge of the US financial stocks, and it has returned just 0.43% YTD versus 8.98% YTD for the S&P 500. What happened to rising interest rate tailwinds? GDP growth? Are these catalysts already spent or are they just hiding?
