State Street Financial Select Sector SPDR ETF

XLF

Market cap $54.8B

The S&P 500 Financials sector extended its overbought streak to 24 trading days and made a new all-time high as of yesterday's close. The sector has now also risen for 6 straight days, with each close occurring in extreme overbought territory (at least 2 standard deviations above its 50-DMA).

U.S. regional banks including U.S. Bancorp and PNC Financial relied on a lending rebound and strong fee income to deliver broad second-quarter gains, alleviating concerns that the Middle East war would weigh on loan demand and spending.

Another way to exploit the AI evolution is available for investors

The S&P 500 Financials sector has been trading in overbought territory (at least one standard deviation above its 50-DMA) for 22 consecutive trading days as of yesterday's close. While the current streak is only tied for the 14th-longest of the past decade, it has been unusually intense.

Financial stocks may benefit from elevated interest rates, resilient economic growth, and increased trading activity. Strong sector momentum and a bullish technical signal support a constructive outlook as major banks report earnings. Large and regional banks offer exposure to healthy lending margins, deposits, credit conditions, and improving earnings expectations.

The 2026 war with Iran has created an array of geopolitical consequences — some of which have directly impacted investor portfolios. Foremost among these is weakening growth expectations, which have proved to be particularly dangerous to portfolios.

The financial sector hasn't inspired much confidence in 2026. The State Street Financial Select Sector SPDR ETF (NYSEARCA:XLF) has gained only about 3% this year and roughly 8% over the past 12 months, trailing much of the broader market. Investors have viewed that weakness as more than just a stock market story.

KBW CEO Tom Michaud joins CNBC's Squawk on the Street to discuss his expectations for bank earnings as major banks begin reporting second-quarter results on Tuesday, the outlook for regional banks, and more.

Wall Street's biggest banks are heading into second-quarter earnings season with investor expectations running high. Strong trading activity, resilient consumer spending, healthy loan demand, good capital market activity and a pickup in artificial intelligence (AI)-driven capital markets activity have fueled optimism.

The Financial Select Sector Index trades at roughly 15.5 times forward earnings — about a turn and a quarter cheaper than where it stood in 2024.