July 20, 2016, 3:15pm EST

U.S. stocks traded to new record highs this morning.
Yesterday we talked about the trajectory of earnings surprises for the second quarter, and the big positive surprises that are being reported in the earnings of banks and financials.  Morgan Stanley joined the bunch today with much better than expected numbers (beating on earnings and revenue).

But, as we said yesterday, financial stocks, broadly, still remain in the red for the year, lagging all other sectors in the S&P 500.

Here’s a look at the sector performance year to date.

If you missed the boat on the rebound in energy stocks earlier in the year, this lag in bank stocks could be the next big run.

What could be the catalyst?  An improving economy and global market stability would certainly be helpful.  The outlook, on that front, will most likely be driven by more intervention.

As we’ve said, next week we think the Bank of Japan will take the opportunity, in response to the Brexit uncertainty, to unleash the powerful combination of fresh fiscal stimulus and (more) monetary stimulus.  And Europe would be smart to follow that lead.

The ECB meets tomorrow, but should do nothing.  But Draghi may/should use his press conference platform wisely, to pressure European politicians to pursue fiscal stimulus to ward off the threats of a Brexit contagion.
And G20 finance ministers and central bankers meet this weekend in China, to set the table for the G20 Summit of global leaders later this year.

What’s a main topic due to be discussed by G20 finance ministers and central bankers?  Fiscal stimulus!

Though waning, that contagion risk in Europe (i.e. threat of a European Monetary Union member leaving the EU and euro), and the crippling effect it would have to the global financial system, is what continues to weigh on bank stocks, including Germany’s biggest, Deutsche Bank.

We’ve already seen a very positive response in global markets to a telegraphed spending package in Japan.  The same in Europe would go a long way toward ending the global shock risk associated with Brexit, and provide optimism about recoveries in Europe and Japan (which would be a big boon for the global economy).

To follow our big picture views and our hand selected portfolio of the best stocks owned by the best billionaire investors in the world, join us in our Billionaire’s Portfolio.