The financial sector has been on a tear this past week, getting a bit of a boost as investors rotate away from technology stocks, and it looks like that boost could continue well into 2018. That, at least, is the opinion of CFRA analyst Lindsey Bell, who thinks the strong earnings growth potential of financials, as well as the regulatory and monetary policy climate, will help propel bank stocks higher. A few of CFRA’s bullish picks include Bank of America Corp. (BAC), Chubb Limited (CB), JPMorgan Chase & Co. (JPM), and Morgan Stanley (MS), according to Barron’s.

Rotation Momentum

Comparing the Financial Sector SPDR (XLF) and the Technology Select SPDR (XLK) funds, both of which track their respective sectors in the S&P 500, it’s not hard to see the inverse relationship that has recently developed.

As of Wednesday’s close, the XLF is up 5.9% while the XLK is down 2.5% since the end of trading on Monday of last week. (To read more, see: Why Big Tech Stocks May Be Headed For A Steep Pullback.)

As for CFRA’s picks over the same period: Bank of America is up 8%; Chubb is up 1%; JPMorgan is up 7%; and Morgan Stanley is up more than 5%. Other major banks like Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) are up 5% and almost 6%, respectively.

Flying Even Higher

Bell thinks these banks can go even higher. Improving loan growth, steadily rising interest rates and further deregulation will all contribute to a rising financial sector over the longer-term. (To read more, see: Why JPMorgan, Bank of America, Citigroup Can Rise 10%.)

In addition, Bell notes that based on consensus expectations, analysts have been raising their 2018 earnings estimates for the financial sector since the middle of 2017. Estimates for earnings growth have gone from 13.4% as of June 30 to 15.2% for 2018. Meanwhile, analysts are lowering their earnings estimates for the overall S&P 500, with expectations for 2018 earnings growth down from 12.1% to 10.7%. The financial sector is also just one of three sectors that had their Q4 estimates raised following their Q3 results, according to a separate article published by Barron’s.

Oh, and financial stocks are some of the only ones that have not yet caught up to their pre-financial-crisis highs, according to Andy Addison of Institutional View. These late bloomers could just be the next big boomers. 

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