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.
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