Financial Stocks Holding Firm Near Highs: 2 Key Players to Watch

Key Points

• The financial sector ETF XLF recently reached new 52-week highs, driven by strong earnings from significant holdings like JPMorgan and Morgan Stanley.
• The Federal Reserve’s recent rate cut is boosting sector momentum, easing borrowing costs, and stabilizing earnings, especially for regional banks exposed to commercial real estate.
• JPMorgan Chase and Morgan Stanley, both consolidating near highs, offer attractive growth, value, and income opportunities heading into year-end.

The financial sector has remained resilient, with the Financial Select Sector SPDR Fund NYSE: XLF recently breaking out to new 52-week highs after consolidating for a month. Strong earnings at the start of the earnings season from major players such as JPMorgan Chase, Wells Fargo, and BlackRock initially fueled this rally, reinforcing bullish sentiment. Despite a modest 2% pullback, the sector is holding above key breakout levels, signaling potential upside as the year enters its final stages.

Strong Sector Momentum

The Federal Reserve’s recent rate cut is expected to sustain the sector's momentum by lowering borrowing costs and easing deposit expenses. This shift could stimulate demand for commercial loans, particularly benefiting regional banks with greater exposure to commercial real estate (CRE). With weak office space demand still weighing on the CRE market, lower rates offer much-needed relief by improving spreads and stabilizing earnings. 

Larger banks, having already set aside billions to manage potential defaults, should also benefit from reduced borrowing costs, giving them more flexibility to manage risks. The combination of improving financial conditions and easing deposit costs provides a favorable environment for the sector as it navigates uncertain economic conditions.

2 Financial Giants for Your Portfolio

JPMorgan Chase

JPMorgan Chase NYSE: JPM, the second-largest holding in the XLF ETF, is having a stellar year, with shares up nearly 31% year-to-date. The stock is consolidating just below new highs at $220 and remains only 1% away from a potential breakout. 

On October 11, the bank reported quarterly earnings of $4.37 per share, beating the $4.02 consensus estimate. Revenue rose 6.5% year-over-year to $43.32 billion, exceeding analyst expectations of $41.43 billion. With a dividend yield of 2.25% and a price-to-earnings ratio (P/E) of 12.4, the stock remains attractively valued despite its strong performance this year. 

Institutional investors continue to show confidence, with net inflows into the stock reaching $26 billion over the past 12 months, compared to $13.7 billion in outflows. With a favorable chart setup, strong sector momentum, and steady institutional support, JPMorgan is well-positioned for further gains heading into the end of the year.

Morgan Stanley

Morgan Stanley NYSE: MS, another key player in the sector, has also posted impressive results. The firm operates across three main segments. Institutional Securities, Wealth Management, and Investment Management, with Institutional Securities driving the bulk of its profitability. Morgan Stanley has gained substantial momentum over the past year, rising more than 60% and almost 70% from its 52-week low. On October 16, the bank reported $1.88 per share earnings, beating the consensus estimate of $1.59. Revenue for the quarter came in at $15.38 billion, exceeding expectations by over 7%. The company’s revenue increased by 16% yearly, with net income surging 32%. 

With a dividend yield of 3.17% and a forward P/E ratio of 14.84, Morgan Stanley remains attractively valued, offering both growth potential and solid income. If the stock can stabilize in the $110 to $115 range, it may provide a compelling long-term entry point for investors looking to gain exposure to a financial giant with expanding margins and impressive earnings growth.

The Bottom Line

The financial sector's resilience, backed by robust earnings and the Federal Reserve’s supportive policies, makes it an attractive space for investors. With stocks like JPMorgan Chase and Morgan Stanley showing strong performance and consolidating near highs, the sector might be poised for continued strength into year-end. Investors seeking exposure to financials could benefit from these market leaders, both of which offer a favorable combination of growth, value, and income potential.