Credit Suisse says financials to rally in 2017 while crowded tech stocks suffer

Traders work on the floor of the New York Stock Exchange.
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Credit Suisse told clients that financial stocks will rally next year on Donald Trump's deregulation policy and warned of investor overcrowding in the technology sector.

"Financials have room to run. ... We are sticking with our overweights on all three financials industry groups, but prefer insurance and diversified financials to banks," strategist Lori Calvasina wrote in a note to clients Wednesday.

She cited the likelihood of higher interest rates, less industry regulation, better earnings, "reasonable" valuations and better fund flows as drivers for the financial sector in 2017.

On the flip side, Calvasina said 69 percent of mutual funds were overweight the technology sector at the end of the third quarter. She is worried "tech will continue to be a source of funds as investors rotate into financials," according to the note.