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Can the financials sector flip the script?

Jay Kaeppel
2026-05-29
The Financials sector has badly lagged the overall market in the past year. Is it time to play for a reversal of fortune? Timing that kind of thing is difficult and fraught with peril. However, a variety of relative strength, internal performance, and insider activity indicators suggest that now is the time to at least put this sector "back on the radar."

Key points:

  • Looking for a contrarian idea? The Financials sector could be due for a reversion to the mean relative to the broader stock market
  • The percentage of financial sector stocks that are outperforming the broader market recently flashed an oversold signal
  • Likewise, our Corporate Insider Velocity indicator recently flashed a subtle "under the radar" signal that could prove bullish in the months ahead
  • Buying into a lagging sector while it continues to lag can be an exercise in frustration. Nonetheless, the bottom line is that now may be an opportune time to revisit - and prepare to act regarding - the down-and-out Financials sector 

Financials have badly lagged the overall market

The Financials sector has been a relative "dog" relative to the overall market for some time now. The chart below shows the performance of the State Street Financials Select Sector SPDR ETF (XLF) relative to the State Street SPDR S&P 500 ETF Trust (SPY).

As you can see, the relative performance of financials has just plunged to a new low. Does this mean that this relationship is "due" to revert to the mean anytime soon? Not necessarily. But for those who are willing to speculate, it does offer an intriguing opportunity.<

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