Financial Sector Surge Confirms Technical Breakout

Market Moves

Oil prices and small-cap indexes closed higher while large-cap indexes remained largely unchanged after the trading session finished today. This action may hint at subtle inflationary indications that, for now, are likely good news for stock market investors. Perhaps this may be a factor in the financial sector's performance today. State Street's financial-sector index ETF (XLF) closed higher by one-half percent, led by the biggest companies in the index it tracks.

As the financial sector rises, it is worth a look to see which stocks are powering the move. The chart below compares an equal-weighted portfolio of the five biggest financial companies, Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), JPMorgan Chase & Co. (JPM), and Morgan Stanley (MS), against the sector at large, the S&P 500 (SPX), and a portfolio composed of half Visa Inc. (V) shares and Mastercard Incorporated shares (MA). Since October, the big banks are winning, climbing nearly 20% in two months.

Oil and Agriculture Prices Begin New Upward Trends

If commodity prices across the markets move generally higher, it is usually considered an inflationary indication. Since Oct. 1, not only oil prices but prices of agricultural commodities such as corn, soybeans, wheat, sugar, and so forth are on the rise. This upward trend may be driven by the opinion that the trade-war outcomes are likely to create new demand for agriculture products and the energy to transport them from the U.S. to China.

But if these moves imply increased prices in these areas, that implies an inflationary condition, which may drive prices higher against the U.S. dollar. This condition is also usually favorable for financial sector companies. So long as inflation does not increase so much that the Fed feels the need to increase interest rates, this should be yet another bullish signal for the markets in 2020.

Netflix Shares Show New Upward Trend

Netflix, Inc. (NFLX) shared global regional data suggesting that it has an unexpectedly strong following outside the U.S. The company's product, as yet, has no tariffs on it, meaning the trade talks are not likely to have adverse impact on the share price of the company. Since investors bid up shares so dramatically today, it is an indication that they see global demand on the rise. This gives additional weight to a hypothesis that inflationary pressures may become evident in the near future, pushing all prices, including share prices, higher through the coming year.  

The Bottom Line

Large-cap stocks closed nearly unchanged, while small-cap stocks and financial sector stocks were higher by one-half percent. Oil and agriculture commodities closed higher, hinting at inflationary influences pushing prices higher. Netflix shares also jumped on news of global demand.

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