Despite early optimism that President Trump’s second term would fuel financials through deregulation and lower rates, the sector is the worst performer so far in 2026.

Growth has been stifled by legal hurdles, contracting net interest margins, and a significant 68% drop in mortgage originations compared to pandemic highs.

The XLF is offering a buy-low opportunity amid new executive orders on lending, AI efficiency gains, and technical indicators suggesting that a potential price reversal is in play. 

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If you spoke with market analysts and investment advisors on the eve of President Donald Trump’s second inauguration, you would have been hard-pressed to find anyone who was bearish on financials.

Most experts agreed that banks, insurance providers, mortgage lenders, and other financial institutions in that sector would enjoy tailwinds during Trump’s second term. Wall Street saw the president as an ally on lower rates and looser regulations that, together, would create a fertile environment for firms operating in the financial services space.

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Over a year into Trump’s second term, that hasn’t been the case.

So far in 2026, that cohort of stocks has been the worst performer among the S&P 500’s 11 sectors, with a year-to-date (YTD) loss exceeding 10%. But like the well-publicized tech sell-off this year, financials’ struggles present a buy-low opportunity for investors looking for a favorable entry point. That’s particularly true of the Financial Select Sector SPDR Fund (NYSEARCA: XLF), which has seen a double-digit dip from its all-time high of $56.51 in January.

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From the onset, expectations for additional financial deregulation during Trump’s second term were high. After signing the largest rollback of banking regulations since the global financial crisis during his first term, Trump was expected to further dismantle safeguards.

That included the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as efforts to defund the Consumer Financial Protection Bureau (CFPB). But his attempts to shutter the CFPB fell short, with federal judges issuing injunctions that prevented unilateral action by the White House.

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Additionally, financial institutions have seen contracting net interest margin (NIM)—the profitability metric measuring the difference between what banks earn from interest on loans and investments versus what they pay in interest on deposits and debt. With the Federal Reserve maintaining rates low, banks—especially regional ones—have been dealing with tighter NIMs, thereby reducing overall profitability.

The housing market has also tamped down the financials sector. Consumer mortgage originations at large banks have fallen nearly 68% from pandemic highs, and rates for 30-year fixed loans are at a YTD high.

After trailing the market throughout Q1, there are reasons to believe financials could rebound through the remainder of 2026. In March, Trump signed an executive order loosening lending requirements in an effort aimed at promoting mortgage lending.

Meanwhile, digital asset integration efforts, including the GENIUS Act, will open avenues of increased transactional revenue, and large banks are increasingly transitioning to practical agentic AI applications that can operate autonomously under human oversight, improving efficiency and lowering costs.

With the 10-year Treasury yield curve normalizing, NIM should improve for smaller and regional lenders, allowing banks to capitalize on short-term borrowing adjacent to long-term lending. Concurrently, mortgage rates are expected to stabilize while home prices are forecast to moderate, which could improve housing affordability.

For investors looking to gain exposure, instead of attempting to identify which bank, insurer, or mortgage lender is likely to benefit the most from these catalysts, the XLF offers comprehensive sector exposure at prices that are currently on sale.

Among the XLF are household names.

Its top-five holdings include Berkshire Hathaway (NYSE: BRK.B), JPMorgan Chase (NYSE: JPM), Visa (NYSE: V), Mastercard (NYSE: MA), and Bank of America (NYSE: BAC).

The fund’s portfolio offers an attractive allocation among financial industries, including banks (27.3%), capital markets (25.6%), insurance (24.8%), and diversified financial services (18.4%).

The XLF also pays a dividend whose yield of 1.46% more than offsets the ETF’s expense ratio of 0.08%.

With nearly $49 billion in assets under management, the XLF is the world’s largest financials ETF, and at a current price around $49.34, the fund is trading nearly 13% below its 52-week high. However, those shares might not be a sale for very long.

Despite the XLF trading beneath both its 50- and 200-day moving averages, there are bullish factors at play. The Relative Strength Index (RSI) on the ETF’s one-year chart bottomed below 30 in mid-March—an indication that the XLF was oversold and likely to reverse. Since then, it has been consolidating and establishing support around the $49 level.

Since the RSI dipped below 30, it has climbed over 38 and is trending higher. It's worth noting that when the RSI bottomed, it coincided with a bearish death cross, with the 50-day moving average slipping below the 200-day moving average. But that pattern could be short-lived if the RSI continues to show improvement.

For context, the last time the RSI fell below 30 was last April amid the market’s tariff tantrum. The XLF then went on to rally by more than 20% before the end of May. A similar rally would bring shares to $59.20, thereby establishing a new 52-week high.

The article "Financials Are Down Big This Year, but XLF Is Looking Like a Buy-Low Opportunity" was originally published by MarketBeat.