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This chart is scarier than the Dow plunging 1,150 points last week

Brian Sozzi

This post was updated.

Close that Yahoo Finance Dow Jones Industrial Average chart (^DJI) for a second and pull up one of the financials if you want a good scare on the economy. Because bank stocks are hurting.

The Dow plunged 1,150 points last week amid concerns over an inverted yield curve (it usually predicts a recession), mixed messages on President Donald Trump’s trade deal at the G20, an expected Fed rate increase, and ongoing fears on Apple’s outlook. But it’s the continued weakness in financials that should be a cause for concern among any bull looking to get long in a seemingly oversold market.

Financials (XLF) were the worst-performing sector in the S&P 500 (^GSPC) last week, and some major bank stocks got crushed. Goldman Sachs (GS), Wells Fargo (WFC), and Bank of America (BAC) plumbed fresh 52-week lows. The 2018 trend of Morgan Stanley (MS) is also shown here:

(Graphic: David Foster/ Yahoo Finance)

“Financials are currently sitting right around an important level of short-term support,” cautioned SunTrust chief markets strategist Keith Lerner. 

The messages from the financials are numerous. For one, it could suggest banks are being hurt more than expected in the fourth quarter from the U.S. housing slowdown. Severe pressure on auto sales is unlikely helping banks, either. And finally, with trade uncertainty, lingering companies could decide to put off M&A much to the dismay of investment banks.

The upside from the volatility? Higher trading sales for the big banks. But Wall Street seems to care less about that, for now.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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