Financials to stage a comeback? Don’t hold your breath, strategists say

With stocks at record highs, the financials sector is the only one in the S&P 500 that remains in the red on the year. And two strategists see no reason to believe that a rebound is ahead.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, sees financials struggling to maintain any small rallies they might have. And that's even if they attract some capital thanks to how undervalued he perceives them as being right now. Instead, Schlossberg predicts that for the financials to hold any upside it will very much depend on what happens in the bond environment.

"In order for financials to really create a sustainable rally, we need to have a much more steeper yield curve," he said Monday on CNBC's "Trading Nation." "Until the yield starts percolating to the upside, it's very hard to make a strong case for why you want to be long financials on an investment basis."

A steeper yield curve would entail short-term yields falling in relation to long-term yields, an ideal environment for banks and financial services firms who tend to lend short-term debt and invest longer term.

Piper Jaffray technical analyst Craig Johnson is also bearish on financials, pointing out that the ETF tracking that sector (XLF) is moving sideways and may stay like that for a while.

"On that XLF, we need to see it close above about $24 to conclude that the uptrend that had been happening for a while is going to reassert itself," he said, also on "Trading Nation." "But right now, it's just consolidating. I can find a lot of other areas in the market that look more interesting than the financials right now."

Instead of the financials sector, Johnson encourages investors to take a look in the materials realm.

"When we downgraded financials [to neutral], we upgraded the basic materials sector to an overweight and we're starting to see a lot of interesting stocks and a lot of interesting industry groups there really starting to pick up," he said.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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