Are the Stars Finally Aligned for US Financial Stocks?

Market and industry trends are shining on US financial stocks, whose fortunes might be changing for the better across diverse sub-industries.

What a difference a year makes. After a series of banking failures in early 2023, financial stocks are showing signs of life again. If the technology sector’s dominance gives way to broader returns across the market, we think financials could be poised for a rerating.

In April 2023, the US financial sector was reeling from a banking crisis, triggered by the failure of Silicon Valley Bank and several regional lenders. When the dust settled, the casualties were limited to specific banks that were compromised by deposit flight and mark-to-market balance-sheet stress in a sharply rising interest-rate environment. Still, investors were understandably spooked and needed time to fully assess the damages and health of the banking system.

Banking Meltdown Averted

Sentiment has started to shift. Financial stocks rallied in the last five months, signaling growing investor confidence that a wider systemic meltdown has been averted. The S&P 500 Financials Index surged 30.4% from November 2023 through March 2024, outperforming the benchmark’s 25.2% gain over the same period. Since November, returns of financials were almost as strong as technology stocks’—but they still have a long way to go to catch up with the market

Financial Stocks Have Started to Recover in Recent Months