On the Radar: Financials

JPMorgan CEO Jamie Dimon crystallized market anxiety during his October 15 earnings call: "My antenna goes up when things like that happen. And I probably shouldn't say this, but when you see one cockroach, there are probably more...Everyone should be forewarned on this one". He noted he is "far more worried than others" about a potential stock market correction, citing geopolitical conflicts, government spending, and persistent inflation risks on top of recent events.

First major warning signal: Jefferies Financial Group Inc. ($JEF)

The recent banking sector wobble began not with traditional regional names, but with Jefferies Financial Group, which disclosed that its Point Bonita credit fund held approximately $715 million in receivables exposure to the fraudulent First Brands bankruptcy. This marked the first major warning signal before the contagion spread to Zions and other regional banks. The episode underscores how private credit exposures and factoring loan risks are creating unexpected pressure points across the financial sector, with Jefferies serving as the proverbial canary in the coal mine for what could evolve into broader credit quality headwinds.

Immediate Catalyst: Zions Bancorporation N.A. ($ZION)

The focus ahead lies on Zions' third-quarter earnings release this Monday, October 20, 2025. Wall Street expects EPS of around $1.46 and revenue near $841.5 million, but the $50 million charge-off on two commercial and industrial loans from its California Bank & Trust division, plus an expected $60 million provision for credit losses, will significantly impact results. Commentary will be scrutinized for signs of broader commercial real estate (CRE) or commercial lending stress. The release and conference call will be key to understanding whether this week's selloff was justified or overdone.

Forecasts and analyst expectations are based on publicly available data as of October 16, 2025, and may not reflect final reported results. Past performance is not a reliable indicator of future outcomes.

Key Charts to Watch: $XLF, $KRE, and $HYG

• XLF remains a bellwether for financial leadership within the S&P, anchoring sector momentum. Price action mirrors broader S&P financial sector trends, hinting at rotation away from the sector without full-scale risk aversion—yet. During earnings season, it is always important to focus on how price follows through and settles post-release and conference calls. Despite major U.S. banks delivering very strong third-quarter results this week, XLF closed the week in the red, falling 2.78% on October 16 alone. A sustained breakdown below recent weekly close levels could trigger broader deleveraging toward key support at the yearly open level.
  (Source: Bloomberg, October 2025).
• KRE is the risk barometer—regional bank underperformance signals broader liquidity strain. KRE continues to underperform dramatically, weighed down by liquidity concerns and deposit flight risks that have yet to fully normalize in smaller U.S. lenders. Regional banks hold approximately 44% of their total loans in commercial real estate—nearly triple the 13% exposure of larger banks—with office property delinquency rates nearing the 2008 crisis peak of 10.4%. The ETF's 6.3% single-day drop on October 16 indicates elevated investor caution. Technically, sustained downside action could confirm a multi-year topping pattern.
• HYG serves as a credit stress barometer—when high-yield spreads widen, equity stress typically follows. The ETF historically provides an early warning system for broader risk asset corrections. Technically, HYG's weekly structure remains bullish to neutral, supported by trend alignment but showing overextension signs short term. Key support lies at the yearly open level; downside acceleration through that would be cause for concern.

Takeaway: A Time to Be Cautious

Financials sit at the heart of current sentiment. On one hand, capital markets show endurance through strong bank earnings; on the other, stress signals in regional banks, private credit exposures, and high-yield credit markets suggest creeping fragility beneath the surface. As Jamie Dimon emphasized, this is a time to be cautious—not fearful, but realistic about what persistent credit tightening and hidden leverage could mean into the end of the year.