Why all signs point to more gains for these stocks

Financial stocks have been leading the market lately, rising nearly 1 percent in June to handily beat every other sector. And technical and fundamental traders see reasons for the run to continue.

Fundamentally, David Seaburg of Cowen says that financial stocks have been outperforming due to the expectation that the Federal Reserve is preparing to raise-short term rates, particularly after the strong May jobs report.

“The data are improving,” Seaburg said Friday. “I think we’ve priced a lot of that in, and I think that we’ve had this Fed-induced rally. Financials with outperform, I think, on a relative basis—but there’s no rush to jump right in now for fear that you may miss a big leg up. I think they’ll gradually perform better over time, as the data continue to come in at a very consistent format.”

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In the long-term, “they can really move higher,” Seaburg added, due to increased demand for homes from young Americans, which will lead to more mortgage originations. “I’m a buyer for the multiyear run.”

Craig Johnson, director of technical research at Piper Jaffray, says the chart of the ETF tracking the financials, ticker XLF, shows that financials are set up to make a “whole new leg higher.”

Additionally, he adds that the relative strength in the sector is “a bullish sign for the overall market,” given that financials often outperform when stocks as a whole do well.

Not everyone is bullish on the hot financial stocks. In a note Monday, Wells Fargo institutional equity strategist Gina Martin Adams wrote that “investors should expect solid performance to continue in the short-run, but fade as tighter policy flattens the yield curve, consistent with the pattern that has historically played out around initial tightening phases.”

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