Financial stocks zoom to new highs

Financials have been on a heckuva run. So much so that more than half of them hit a 52-week high yesterday.

There were 3 other similar thrusts in recent months. Because of this, over the past 50 sessions, an average day has seen nearly 20% of the stocks hitting new highs. This is one of the highest averages in more than 20 years.

The Backtest Engine shows that there were essentially 3 distinct times in the past 20 years when financials went on a run like this. To run this exact test yourself, click here, then the Run Backtest button.

Short-term returns were weak, then choppy in the months ahead. Long-term returns were still good, thanks to the momentum.

If we zoom in on each of the precedents, we can see a 3-6 month stretch after each of them when XLF struggled to hold gains.

Even when looking at lesser extremes in this 50-day average of new highs in XLF, the fund struggled to show sustained gains over the next several months. This is a realism check for those looking to jump into the latest hot sector.