Chart Of The Day: Financial Sector Looks Set To Slip

 | Sep 11, 2017 10:14AM ET

By Pinchas Cohen

Last Thursday, we posted the first article in a series to be published over the next few days taking a closer look S&P 500 sectors. Last week's article offered a deeper drilldown into the energy sector and oil.

Today's piece focuses on financials via the Financial Select Sector SPDR ETF (NYSE:XLF). Last Thursday, financials led the market decline. While the S&P 500 Index fell 0.75 percent, financials fell harder, down 2.15 percent.

h2 Financial Sector Under Pressure/h2

Financials have already been under pressure; the Fed has shifting gears from the fast-lane rhetoric of higher interest rates during their June meeting to —after inflation and growth have consistently disappointed—a much slower expected trajectory back to normalcy. Harvey, followed almost immediately by Irma, the first back-to-back hurricanes since 1964 and the implications of their one-two punch will have on the US's economic growth, including damage to property, businesses (especially insurance companies which are financials), as well the expected hit to the energy sector gains, will likely spur investors to shift into safe haven bonds, causing yields to plummet, along with bank earnings.

If all this weren't enough, last Thursday was the day Federal Reserve Vice Chairman Stanley Fischer announced his resignation. The Fed’s loss of his gravitas weakens its leadership, increases uncertainty and reduces the probability for higher interest rates even further.

Some hypothesize that his sudden resignation for “personal reasons” is an escape in front of an economic hurricane he doesn't want to weather, at the end of a decade-long run of global QE. While the central bank intervention was led by former Fed Chief Ben Bernanke, the former Fed Chair studied Keynesian economics at the 'feet of' then MIT Professor Stanley Fischer, who was his PhD thesis advisor (and also advisor to Mario Draghi). Fischer, in fact, was even then a leading advocate of activist central banking.

h2 XLF Price Action/h2