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This Week's Featured Article Financials Are Down Big This Year, but XLF Is Looking Like a Buy-Low OpportunitySubmitted by Jessica Mitacek. Date 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, insurance providers, mortgage lenders and other financial firms would enjoy tailwinds during Trump’s second term. Wall Street viewed the president as an ally on lower rates and looser regulation, which together were expected to create a favorable environment for companies in the financial services space. More than a year into Trump’s second term, that expectation has yet to materialize. So far in 2026, that group of stocks is the worst performer among the S&P 500’s 11 sectors, with a year-to-date (YTD) loss exceeding 10%. But like the widely publicized tech sell-off this year, financials’ underperformance can present a buy-low opportunity for investors seeking an attractive entry point. That’s particularly true for the Financial Select Sector SPDR Fund (NYSEARCA: XLF), which has pulled back double digits from its January all-time high of $56.51. What’s Been Holding Back Financials Coming into the term, expectations for additional financial deregulation were high. After the largest rollback of banking rules since the global financial crisis during his first term, Trump was expected to further pare back safeguards. That included Dodd-Frank reforms and efforts to defund the Consumer Financial Protection Bureau (CFPB). Attempts to curtail the CFPB fell short, however, as federal judges issued injunctions that limited unilateral actions by the White House. Financial institutions have also seen compressing net interest margins (NIM)—the spread between what banks earn on loans and investments and what they pay on deposits and debt. With the Federal Reserve keeping policy rates low, many banks—especially regional lenders—have faced tighter NIMs, which has squeezed profitability. The housing market has weighed on the sector as well. Consumer mortgage originations at large banks remain about 68% below pandemic peaks, and 30-year fixed mortgage rates are at a YTD high, deterring some buyers and reducing lending activity. Catalysts Are on the Horizon After lagging the market through Q1, there are reasons to think financials could rebound later in 2026. In March, Trump signed an executive order aimed at easing lending requirements to promote mortgage lending. Meanwhile, digital-asset integration efforts—such as the GENIUS Act—could open new transactional revenue streams. Large banks are also increasingly deploying agentic AI applications that operate under human oversight, improving efficiency and reducing costs. As the 10-year Treasury yield curve normalizes, NIMs should improve for smaller and regional lenders, allowing banks to benefit from borrowing short-term and lending long-term. At the same time, mortgage rates are expected to stabilize and home-price growth may moderate, which could help housing affordability. For investors seeking exposure to potential upside without picking individual winners, the XLF provides broad sector exposure at prices that are currently discounted. A Basket of Big Banks, Brokerages, Insurers, and Payment Processors The XLF holds many household names. Its top-five holdings include 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 is diversified across the financial industry: 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 covers 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. Trading around $49.34, the fund sits roughly 13% below its 52-week high—an attractive discount that may not last long. Technical Indicators Hint at a Potential Reversal Although the XLF is trading below both its 50- and 200-day moving averages, several technical signals look constructive. The Relative Strength Index (RSI) on the ETF’s one-year chart fell below 30 in mid-March—an indication it was oversold and ripe for a reversal. Since then, the ETF has been consolidating and establishing support around the $49 level. After the RSI dipped below 30, it has risen above 38 and continues to trend higher. When the RSI bottomed, it coincided with a bearish death cross—the 50-day moving average moving below the 200-day—but that pattern could be short-lived if momentum keeps improving. For context, the last time the RSI fell below 30 was in April of last year during a tariff-driven sell-off. The XLF subsequently rallied more than 20% before the end of May. A similar move now would lift shares toward about $59.20, creating a new 52-week high. | 
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