Tuesday, May 29, 2018

This Week's Message: The European Problem and Probabilities Going Forward (podcast)

A quick note on financials to add to this week's commentary: The financial sector -- our largest target weighting -- is leading the way lower this morning amid a global equity market selloff. This looks to us to be a reaction to a strong move into U.S. treasuries, forcing yields lower, in response to present Eurozone woes (which I touch on in the audio). Lately, financials have shown strong correlation to interest rates, as higher rates would lead to higher earnings on loan portfolios. Therefore, a move lower -- the likes of what we've seen the past few days -- virtually has to hit the sector harder than we might've otherwise expected. 

Beyond this understandably negative reaction to lower yields, when we consider the general macro setup -- which remains supportive of modestly rising rates and decent loan growth going forward -- relative valuations, heightened trading volume (ironically) and the presently favorable regulatory environment, we're inspired to stay the course with financials for the time being.

click the play button to hear this week's message...   

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