S&P 500 financial stocks form the first Death Cross since 2023

• The last Death Cross in November 2023 preceded the 2023 banking sector stress and regional bank failures; a similar pattern in April 2022 led to an 18% sector decline over six months
• Hedge funds have been net sellers of financial stocks (banks, insurers, fintech, trading companies) in the week through March 13, according to Goldman Sachs research
• Analysts cite exposure to private credit markets and rising oil prices as key pressure points, though some believe rising short interest may reflect hedging activity rather than outright bearishness

Summary

Key Development:

S&P 500 financial stocks formed a Death Cross on Tuesday, March 17, marking the first occurrence since October 2023. This technical pattern occurs when the short-term moving average crosses below the long-term trend line, signaling weakening momentum and increased downside risk.

Historical Context:

• The previous Death Cross in November 2023 emerged during recovery from the 2022 downturn caused by Federal Reserve rate hikes and preceded the 2023 banking sector stress with regional bank failures
• In April 2022, a similar pattern resulted in an 18% sector decline over approximately six months

Market Performance:

Financial stocks are significantly underperforming the broader S&P 500, with relative strength dropping to levels last seen during the COVID-era recovery in late 2020. This suggests the weakness extends beyond recent volatility.

Key Pressure Points:

• Exposure to private credit markets
• Potential macroeconomic impact of rising oil prices
• Hedge funds actively selling financial stocks across banks, insurers, fintech firms, and trading companies during the week through March 13

Market Implications:

The Death Cross raises concerns about a potential shift in the economic cycle. Goldman Sachs research confirms net selling across international financial markets. However, analysts note that rising short interest may reflect broader hedging activity rather than outright bearishness on banks.

While Death Crosses serve as trend confirmation rather than precise timing tools, historical precedents suggest potential for significant downside movement in the financial sector.