Trading Nation

Financials broke a record for the first time since 2007, and an even bigger breakout could be on the way

Why this investing pro is banking on a breakout in financials

Financials have been on a tear.

The financials sector on Thursday rallied to a new high for the first time since 2007, with the big banks JPMorgan, Bank of America, Wells Fargo and Citigroup all showing off big gains.

The financials ETF, the XLF, which did not hit a record but is at 2007 highs, is also on track for its best year since 2013. Oppenheimer technician Ari Wald says that stabilizing interest rates and overall bullish market conditions could drive the XLF to an even bigger breakout.

"We can see financials basing versus the S&P 500, the turn in its 200-day moving average now breaking above resistance," he said Thursday on CNBC's "Trading Nation." "You see a lot of similarities to the fourth quarter of 2016, that's how we're thinking about returns into 2020. ... We think there's more upside for leadership here."

Chantico Global CEO Gina Sanchez agrees that a breakout is likely ahead given two key factors that are favorable for the financials.

The first, says Sanchez, "is favoring cheaper stocks, and banks definitely fall into that category," and their lower multiples have been a "huge boon."

Secondly, on a fundamental level, Sanchez also points to the current interest rate environment and banks' issuance as key positives for an even bigger rally.

"Remember that [banks'] revenues are driven by two major things: their net interest margins and fee income," Sanchez said during the same segment. "Net interest margin is determined by the shape of the yield curve, and since the Fed cut the short end of the yield curve down, it steepened the curve enough so that banks can continue to make money."

Sanchez added in a note to "Trading Nation" that IPO issuance and debt issuance levels are still strong despite a more recent slowdown. That, in conjunction with a steepened yield curve, bodes well for banks' revenues.

Financials have rallied 29 percent this year in the third best performance on the S&P 500, behind technology and communications services.