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.