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Further Reading from MarketBeat
Financials Are Down Big This Year, but XLF Is Looking Like a Buy-Low OpportunityAuthored by Jessica Mitacek. Article Posted: 3/29/2026. 
Key Points
- Despite early optimism that President Trump’s second term would fuel financials through deregulation and lower rates, the sector is the worst performer so far in 2026.
- Growth has been stifled by legal hurdles, contracting net interest margins, and a significant 68% drop in mortgage originations compared to pandemic highs.
- The XLF is offering a buy-low opportunity amid new executive orders on lending, AI efficiency gains, and technical indicators suggesting that a potential price reversal is in play.
- Special Report: Elon Musk: This Could Turn $100 into $100,000
If you spoke with market analysts and investment advisors on the eve of President Donald Trump’s second inauguration, you would have been hard-pressed to find anyone who was bearish on financials. Most experts agreed that banks, insurers, mortgage lenders and other firms in the financials sector would enjoy tailwinds during Trump’s second term. Wall Street viewed the president as an ally on lower rates and looser regulation, factors thought likely to create a fertile environment for companies operating in financial services.
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More than a year into Trump’s second term, however, that hasn’t been the case. So far in 2026, the sector has been the worst performer among the S&P 500’s 11 sectors, with a year-to-date (YTD) loss exceeding 10%. But, like the well-publicized tech sell-off this year, financials’ weakness presents a buy-low opportunity for investors seeking a favorable entry point. That’s particularly true of the Financial Select Sector SPDR Fund (NYSEARCA: XLF), which has dropped double digits from its all-time high of $56.51 in January. What’s Been Holding Back FinancialsExpectations for further deregulation during Trump’s second term were high. After signing the most significant rollback of banking regulations since the global financial crisis in his first term, Trump was expected to continue easing oversight. That included potential changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act and efforts to defund the Consumer Financial Protection Bureau (CFPB). Attempts to curtail the CFPB ultimately fell short, as federal judges issued injunctions preventing unilateral action by the White House. Financial institutions have also been hit by contracting net interest margins (NIM)—the difference between interest earned on loans and investments and interest paid on deposits and debt. With the Federal Reserve maintaining low rates, banks—especially regional lenders—have faced tighter NIMs, which reduces profitability. The housing market has weighed on the sector as well. Consumer mortgage originations at large banks have fallen nearly 68% from pandemic highs, and rates for 30-year fixed loans are at a YTD high. Catalysts Are on the HorizonAfter trailing the market throughout Q1, there are reasons to believe financials could rebound through the remainder of 2026. In March, Trump signed an executive order loosening certain lending requirements to promote mortgage lending. Digital asset integration efforts, including the GENIUS Act, could open new sources of transaction revenue. Large banks are also increasingly adopting practical agentic AI applications that can operate autonomously under human oversight, improving efficiency and reducing costs. With the 10-year Treasury yield curve normalizing, NIM should improve for smaller and regional lenders, allowing banks to benefit from borrowing short-term while lending long-term. At the same time, mortgage rates are expected to stabilize and home-price growth is forecast to moderate, which could improve housing affordability. For investors looking for exposure without selecting individual winners, the XLF offers broad sector coverage at prices that are currently on sale. A Basket of Big Banks, Brokerages, Insurers, and Payment ProcessorsThe XLF includes several household names. Its top-five holdings comprise Berkshire Hathaway (NYSE: BRK.B), JPMorgan Chase (NYSE: JPM), Visa (NYSE: V), Mastercard (NYSE: MA), and Bank of America (NYSE: BAC). The fund’s portfolio provides an attractive allocation across financial industries, including banks (27.3%), capital markets (25.6%), insurance (24.8%) and diversified financial services (18.4%). The XLF also pays a dividend with a yield of 1.46%, which more than offsets the ETF’s expense ratio of 0.08%. With nearly $49 billion in assets under management, the XLF is the world’s largest financials ETF. At a current price around $49.34, the fund is trading roughly 13% below its 52-week high — a discount that may not last long. Technical Indicators Hint at a Potential ReversalDespite the XLF trading below both its 50- and 200-day moving averages, some technical signs are bullish. The Relative Strength Index (RSI) on the ETF’s one-year chart bottomed below 30 in mid-March—an indication the XLF was oversold and ripe for a reversal. Since then it has been consolidating and establishing support around the $49 level. Since the RSI dipped below 30, it has climbed above 38 and is trending higher. When the RSI bottomed, it coincided with a bearish death cross, with the 50-day moving average dipping below the 200-day moving average. That pattern could be short-lived if the RSI continues to improve. For context, the last time the RSI fell below 30 was last April amid the market’s tariff concerns. The XLF then rallied more than 20% before the end of May. A similar move this year would push shares to about $59.20, establishing a new 52-week high. |
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