Best Stocks: A capital markets name enabling the buildout of the digital economy

The Financials sector is exhibiting strong momentum, currently the fourth-best performing sector year-to-date with a 9.7% total return, having recovered from an earlier 25% drawdown. This resurgence is evidenced by broad market participation, with 70% of S&P 500 financials above key moving averages and 16% making new 52-week highs, tripling the broader market's average, and major banks trading at new highs. This performance signals renewed confidence in the U.S. economy and a favorable environment for capital markets stocks driven by increased risk-taking and deal-making. The recent addition of BlackRock (BLK) to a 'best stocks' list further highlights a broader trend of economic financialization, valuing companies that provide digital asset infrastructure and enable the flow of capital in a digitized economy.

Analysis

The Financials sector is exhibiting robust momentum, ranking as the fourth-best performing sector year-to-date with a 9.7% total return after recovering from a significant 15.5% max drawdown, which represented a 25% swing. This recovery is supported by strong market breadth, with 70% of S&P 500 financials trading above their 20, 50, and 200-day moving averages. Furthermore, the sector is leading the market in new highs, with 16% of its constituents reaching new 52-week peaks, a rate triple that of the broader S&P 500. This strength, underscored by new all-time highs in major banks like JPMorgan Chase and Morgan Stanley, suggests renewed confidence in the U.S. economy and a favorable environment for capital markets firms. The analysis posits that these stocks have not yet fully priced in the rebound in risk-taking and deal-making. BlackRock (BLK) is presented as a prime example, not just as a traditional asset manager but as a key player in the structural trend of economic 'financialization'—the increasing value of infrastructure for digitized assets, tokenization, and real-time settlement. From a technical perspective, BLK has reclaimed its prior highs after a downtrend, but may experience false breakouts as it establishes new support, suggesting a potentially rewarding but volatile entry point for investors anticipating a breakout.

Key Decisions for Investors

• Given the sector's strong technical momentum and leadership in new highs, investors should consider increasing exposure to Financials, particularly capital markets firms that benefit directly from asset flows and deal-making.
• For BlackRock (BLK), monitor price action around its winter 2024 high for a potential breakout, but be prepared for volatility and false starts as it attempts to establish a new support level, aligning with the thesis that it's worth being early on this move.
• Recognize that the long-term investment case for firms like BlackRock is tied to the structural 'financialization' of the economy; therefore, tracking the adoption of digital assets and tokenization is key to validating this thesis.
• Despite the bullish outlook, the sector's earlier 25% performance swing this year serves as a reminder of its volatility, necessitating careful position sizing and risk management should broader economic confidence falter.