Financials Sector Rating: Marketperform

It includes banks, savings-and-loan companies, insurance companies, investment funds, brokerages, mortgage finance companies and mortgage real estate investment trusts (REITs).

The recent drop in both short- and long-term interest rates due to the coronavirus epidemic has hurt relative performance. And we have reduced our outlook for interest rates, until we see the impact from the virus on global growth. Typically when the yield curve flattens—that is, when longer-term yields and short-term yields are relatively similar—it’s detrimental for financial institutions, which generally borrow at short-term rates and lend at longer-term rates. On the other hand, attractive valuations may provide some support.

In terms of risk to our outlook, topline revenue growth may prove to be elusive as regulatory burdens remain high, and areas like asset management and brokerage services suffer from severe price competition and low short-term interest rates. Additionally, the sector’s sensitivity to interest rates and the stock market could translate into sharp underperformance should we see a significant pullback in the market.

Sector Overview: Financials

Note: Each of the sector lenses shown above—Macroeconomic, Value, Fundamental and Relative Strength—is both intuitive and evidenced-based in nature. Within each, there are a varying number of factors. The Macroeconomic lens includes sector sensitivities to interest rates, stocks and the value of the U.S. dollar; the outlook for each of these is determined by the Schwab Center for Financial Research (SCFR)’s Asset Allocation Working Group, which uses a mosaic approach of quantitative and qualitative considerations. Value includes six different valuation metrics that provide a holistic perspective on current valuations relative to each of the sectors’ own historical valuations, as well as relative to the other sectors. Fundamental provides insight as to how efficiently the companies within each sector use invested capital to produce earnings; this historically has been informative as to future relative performance of the sectors. Finally, Relative Strength measures momentum of the individual sectors against all of the other sectors. We also consider the data in the context of factors outside the scope of these indicators—for example, geopolitical risk or central bank policy changes.  

Source: Charles Schwab, as of 03/05/2020.

What do the ratings mean?

The sectors we analyze are from the widely recognized Global Industry Classification Standard (GICS®) groupings. After a review of risks and opportunities, we give each stock sector one of the following ratings:

  • Outperform: likely to perform better than the broader stock market*
  • Underperform: likely to perform worse than the broader stock market
  • Marketperform: likely to track the broader stock market


Want to learn more about a specific sector?  Click on a link below for more information or visit Schwab Sector Views to see how they compare. Clients can log in to see our top-rated stocks in the Financials sector.


* As represented by the S&P 500 index

Communication ServicesIndustrials
Consumer DiscretionaryInformation Technology
Consumer StaplesMaterials
EnergyReal Estate
Health CareUtilities


Next Steps

Important Disclosures

Schwab Sector Views do not represent a personalized recommendation of a particular investment strategy to you. You should not buy or sell an investment without first considering whether it is appropriate for you and your portfolio. Additionally, you should review and consider any recent market news. Supporting documentation for any claims or statistical information is available upon request.

All expressions of opinion are subject to change without notice in reaction to shifting market or other conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Investing involves risk including loss of principal.

The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practicesis a survey of up to 80 large domestic banks and 24 U.S. branches and agencies of foreign banks. The Federal Reserve generally conducts the survey quarterly, timing it so that results are available for the January/February, April/May, August, and October/November meetings of the Federal Open Market Committee. The Federal Reserve occasionally conducts one or two additional surveys during the year. Questions cover changes in the standards and terms of the banks' lending and the state of business and household demand for loans. The survey often includes questions on one or two other topics of current interest.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.