Trading Nation

Financials are flashing a 'warning sign' to investors, says trader

Trading Nation: Financials and energy lead the S&P, here's how to play the move
Trading Nation: Financials and energy lead the S&P, here's how to play the move

Financials are sending the market a warning sign.

That was one trader's theory about the group as it led the S&P 500 higher Thursday, up more than 2% as of the close. Financials are still the second worst-performing sector in the S&P year to date, with only energy seeing deeper losses.

"I think the financials are giving us the warning sign to be very, very cautious with this overall market," Quint Tatro, president and chief investment officer of Joule Financial, told CNBC's "Trading Nation" on Thursday.

Asked how he would trade financial stocks, Tatro replied: "Very, very carefully."

"I wish this wasn't the case, but the financial action is really what has me more concerned about the market than anything," he said. "There's value here, like a JPMorgan [trading at] 1.2 times book [value], 10 times forward earnings, and that looks attractive. Unfortunately, I think it's a value trap."

Craig Johnson, senior technical research analyst at Piper Sandler, said that while the group has fallen to levels some investors might consider attractive, buyers shouldn't expect immediate results.

"I look at this rebound in the banks as really just a relief rally at this point in time and I would simply say that I think there are some opportunities here to make some deposits in some interesting stocks," Johnson said in the same "Trading Nation" interview, pointing to a chart of the Financial Select Sector SPDR Fund (XLF).

"If you look at the XLF specifically, I look at this as a nice-looking rebound so far, but we're neutral this sector ... because I think it's going to take a little bit more time before we start to see the banks start to work," he said. "I think tech looks more constructive from my perspective."

The XLF ended Thursday's trading up more than 2% on the back of a healthy day for the broad market.

As of Thursday's close, only seven financial stocks in the S&P were in the green for 2020: MSCI, MarketAxess, S&P Global, Moody's, Progressive, Intercontinental Exchange and Nasdaq.

Disclosure: Piper Sandler has had a client relationship or has received compensation for investment banking services from; has had a client relationship and has received compensation for noninvestment banking securities related products or services in the past 12 months for; and is a registered market maker for JPMorgan. Piper Sandler will buy and sell securities on a principal basis for MSCI.