From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts
Over the last few months, there's been a distinct rotation into Financials and other cyclical areas across equity markets not just in the US, but across the globe.
This topic is nothing new around here as it's been a big theme for us recently. Consider some of our calls from this month:
I think you get it. We're quite bullish on risk assets at the moment.
Long story short, the expansion in participation from cyclical stocks and commodities has provided us with a swath of new opportunities... and we've been jumping at them.
The stage is set for a structural reversal in favor of Financials and Value stocks on a relative basis, so we're looking far and wide for the leaders with the best risk profiles in the space.
In this post, we dive into International Financials and outline the individual names we're buying as vehicles to take advantage of this trend.
Here's a glimpse at the iShares Global Financials Index $IXG which recently broke out above its pre-COVID highs.
While a large portion of US Financials have reclaimed their pre-financial Crisis highs, this isn't the case for most International, and particularly European Financials.
They've been secular laggards for a decade now, due in large part to the slow/no-growth, low-interest rate global economy.
Although, with yields around the world trending higher, and an overwhelming amount of evidence pointing to a sustained period of global growth and reflation, a bullish case can finally be made for International Financials.
Here is IXG carving out a bottom at a very logical level to begin outperforming international stocks as a group (All Word ex-US ETF $VEU).
When we consider this price action alongside developments such as rising rates, rotation into value, and evidence of the world playing catch-up and outperforming the US... it seems like all the right conditions are in place for Global Financials to cash in big here.
So, what did we do?
We scoured IXG's components, along with other International Financial ETFs like $EUFN (European Financials), as well as our own internal ADR universe for the strongest Financial stocks with the most favorable risk/reward setups from all over the globe.
Let's dive in and look at the names we're buying that are leading this trend higher.
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