MW The financial sector is sending some spooky technical signals about the stock market

By Tomi Kilgore

It's hard to look at charts of the SPDR financial sector ETF and not see them as bearish - broken trendlines, a death cross and a relative-strength plunge

Broken trendlines and a looming "death cross" pattern bode badly for the financial sector, and therefore the rest of the stock market.

A number of charts suggest the financial sector is suffering through a bearish technical breakdown, and that could send a chilling signal for the rest of the stock market.

The State Street Financial Select Sector ETF's XLF chart has been flashing yellow-light signals for the past several weeks. Even though the ETF bounced a bit on Friday to snap a six-day losing streak - the longest in two years - a technical blinking red light will likely still flash on Monday, in the form of an ominous "death cross" pattern.

The current selloff hasn't reached the bear-market threshold like it did when inflation started spiking in early 2022, and still hasn't fallen as deep as the "liberation day" tariffs correction suffered last April. But how much the sector has underperformed relative to the broader stock market, amid growing concerns over stability of the private-credit market and surging crude oil prices (CL.1), suggests the sector's weakness continues to broaden, and the worst appears yet to come.

It's uncertain how much exposure banks have to the private-credit problems, or how widespread those problems are, but Mike O'Rourke, chief market strategist at JonesTrading, said there are now "legitimate stresses" in the financial sector.

"Since banking is a confidence business and contagion risk always exists, the space is an 'avoid' until the correction is larger, bodies wash up, or the dust starts to clear," O'Rourke wrote in a note to clients. "Of those three paths, we believe the larger correction is the most likely in the near term."

The XLF rose 0.1% on Friday, after shedding 5.2% over the previous six sessions to close Thursday at a 10-month low. It has dropped 13.3% since closing at a record $56.40 on Jan. 6.

What does a down-trending financial sector mean for the broader stock market?

Of the S&P 500 index's SPX 11 sectors, financials are the second most-heavily weighted at 12.5% as of the last rebalancing at the end of February, behind information technology at 32.4%.

Over the past three years, the correlation coefficient between the XLF and the S&P 500 is 0.97, in which a correlation of 1.00 means they move exactly in unison. But to start 2026, that correlation has dipped to 0.74, according to a MarketWatch analysis of FactSet data. The XLF has fallen 10.7% this year through Friday to be the worst-performing S&P 500 sector, while the S&P 500 has lost 3.1%.

CappThesis technical analyst Frank Cappelleri said his view is that the financial sector has already "rolled over." And given how much influence it has on the market, "seeing this sector completely roll over would be difficult for the broader market to absorb," Cappelleri wrote in a recent note.

Yellow lights flash

The first yellow light to flash was in early February, when the XLF broke below a short-term uptrend line that had defined the rally off the "liberation day" lows of April 2025.

The next warning sign flashed after the previous technical support at the November 2025 low, as well as at rising longer-term trendline that started off the October 2023 low - they were both at around the same level - definitively gave way after the Iran conflict started.

There's also the matter of the three tops marked in the chart above by the red lines. The key is the third top, as the XLF had seemed to find support at the first trendline, but failed to resume the rally to a new high before support gave way. That lower high, coupled with the fresh low hit last week, extends the pattern of lower peaks and lower troughs that many chart watchers say defines a downtrend.

With the break below previous support, Cappelleri said he believes the next downside target for the XLF is $45.50.

Keep in mind that a 20% decline from the Jan. 6 record close of $56.40 would put the XLF at $45.12. Many on Wall Street believe a decline of 20% or more from a significant bull-market peak is what defines a bear market.

'Death cross' is coming

The point in which many chart watchers believe a "roll over" or breakdown technically graduates to a longer-term downtrend is when the 50-day moving average, a widely followed short-term trend tracker, crosses below the 200-day moving, which is viewed as a divider between long-term uptrends and downtrend.

Based on the current trajectories of those moving averages for the XLF, the crossover will occur on Monday.

The last time the 50-DMA was below the 200-DMA was Nov. 30, 2023, as the XLF was breaking above a nearly two-year long downtrend triggered first in 2022 by rapid Federal Reserve rate increases to fight off a historic surge in inflation, then in 2023 by worries of a banking crisis after a number of regional bank failures.

Death crosses are more acknowledgments that the trend has extended long enough and/or fallen far enough to be taken seriously, and aren't necessarily meant to be good market-timing signals. But the last time a death cross occurred after the 50-DMA had been above the 200-DMA for more than a year was April 14, 2022. It fell another 18% before bottoming six months later.

BTIG technical strategist Jonathan Krinsky noted that the outlook can look even worse as the 200-DMA turns lower. For the XLF, the 200-DMA has been has been declining since March 5; the last time it has had sustained declines longer than that was during the second half of 2023.

Relatively speaking

One way to get a clear view of how a charted instrument is performing versus another is through a relative strength chart.

It's no secret that financials have been having a rough time this year. But the underperformance has gone on a lot longer than that, and reached depths not seen since COVID.

Financials are often viewed as a guide to business and economic cycles, as they perform best when liquidity is plentiful and businesses feel good enough to borrow money to grow. State Street Investment Management said in a recent business cycle analysis, that during economic expansion, "financials' outperformance is quite consistent, as they beat the market in 11 out of 13 expansion phases."

That would also mean the opposite is true. The last time the XLF was at current levels on a relative strength chart with the S&P 500 was in late 2020, as the current economic expansion was just getting started after the COVID-induced recession had ended.

Basically, there's reason to worry that a recession may not be far off.

Jessica Rabe, co-founder of DataTrek Research, said the financials' weakness is reflecting not only concerns about exposure to private credit, but also worries that rising oil prices could slow the U.S. economy. Historically, a doubling in oil prices within a year often leads to a recession, she told MarketWatch.

"That hasn't happened yet, but we're getting closer," Rabe said.

-Tomi Kilgore

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March 15, 2026 15:54 ET (19:54 GMT)

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