The two best performing sectors last month – energy and the financials – have continued their run into March.
The XLE energy ETF and the XLF financial ETF gained roughly 3% on Monday, and are up double digits in the past month.
If investors have to pick between the two, Oppenheimer head of technical analysis Ari Wald says the choice is simple.
“Financials,” Wald told CNBC’s “Trading Nation” on Monday. “I’d call out the capital markets industry, specifically, which is going to include both Morgan Stanley and Goldman Sachs.”
“The industry held up when things weren’t going its way on the downswing,” said Wald. “Interest rates fell to a new low in 2020, they fell below 2012 and 2016 lows. Relative to the market, capital markets did not. They were making higher lows along the way. … I think this stronger base leads to a stronger recovery now the market is on the upswing.”
Michael Bapis, managing director at Vios Advisors at Rockefeller Capital, said he’s hanging onto both groups.
“There are so many multiple tailwinds behind each one of them,” Bapis said during the same interview. “The economy is going to begin reopening, oil prices are higher, travel is going to heat up. You’re going to see consolidation in both industries.”
But Bapis agrees that if he had to choose, banking has an edge in a higher interest rate environment.
“If rates begin to rise, they will be even stronger companies [given] paying dividends and a rising interest rate environment,” said Bapis.
Banking profitability improves when rates rise and the curve between longer-term and shorter-term Treasury yields widens. It allows lenders to borrow cheaply on the short side and lend long at higher interest rates.
