However, some technical analysts believe the sector has gotten too hot too fast.
“The recent breakout and massive rally higher has pushed relative momentum up to levels seldom seen in the past 10 years. If past history is an indicator of future results, then the banking sector could underperform for the next 1 to 3 years,” according to See It Market.
There is another important catalyst to consider for financial services stocks and ETFs: The potential for bullish earnings trends to emerge.
Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.
“Lastly, at the same time that momentum is overheated, the Bank Index/S&P 500 ratio is testing “dual” price resistance,” adds See It Market.
For more information on the banking sector, visit our financial category.