Financials closed out 2016 as one of the top-performing sectors of the year, and according to one portfolio manager, the new year should have investors banking on financial stocks.
Thanks to the post-election rally fueled by Donald Trump's victory, the financials surged to finish the year up 20 percent from where the sector started in January. With JPMorgan hitting all-time highs in the first trading day of the year, Chad Morganlander, portfolio manager at Stifel Nicolaus, predicts that 2017 will be another banner year for the banks.
"Due in part to [a less stringent regulatory environment], we think that the banking sector is going to re-lever," Morganlander said Tuesday on CNBC's "Power Lunch" alluding to Trump's proposed easing of regulations on financial companies.
Along with the possibility of three interest rate rises in the coming year and Morganlander's own observation that mortgage credit is starting to expand, both of which would also be good for banks, leads the portfolio manager to be overweight financials.
For excited investors looking to get into the financials, turning to the options market may be the way to go. Tuesday on CNBC's "Trading Nation," Todd Gordon of TradingAnalysis.com showed that from what he sees, the financials-tracking ETF (XLF) is trading in a "sideways consolidation," but still following an upward trend that began at the end of last year.
As a result, Gordon bought the Feb 22-strike calls for $1.81, with an expiration date of Feb 17. This means that Gordon is paying $181 per options spread on a bet that the XLF will close above $23.81 on Feb 17.
But Piper Jaffray technician Craig Johnson believes that investors may want to wait to buy the surging sector. He believes that the XLF has hit its price target, and a better buying opportunity is likely in the future.
"Right now you've reached that measured objective and every time I see us reach this measured objective, you usually consolidate back and fill for a little bit," Johnson said on "Power Lunch." "Look for some backing and filling in the financials, and use that as an opportunity to be buying the stocks through the year."
