After what has been a breathtaking rally for financial stocks – the gas is starting to fizzle off a little. The XLF pulled back on Tuesday by a couple percentage points. But, more likely, a pullback may have been long overdue.One must wonder if it’s time to get more aggressive, or pull positions in the financial sector. After all, the Trump Rally mostly floated on Dodd Frank repeal, and promises of more aggressive fiscal stimulus. Source: Bank of America Merrill LynchThe most overcrowded trade could become the financials. In the above BofAML survey, investment managers are disproportionately positioned in the financial space. While, fund managers are heavily overweight the sector, the underlying impetus for buying large cap banks hinges mostly on political outcomes or externalities that may or may not occur. Source: Barclays Research AmericasBank earnings were all around phenomenal, and from what I can gather, investors were mostly enthused by an increase in lending activity. While deposits held by the banks are still somewhat excessive, the loan/deposit ratio is roughly 72% to 74% currently. The degree to which banks can start utilizing a higher percentage of assets without maintaining as much of financial buffer, i.e. HQLA (high quality liquid assets), the better S&L banks will operate. However, the degree to which investors carry conviction into this trade is driven by both near-term macro and micro forces in conjunction with potential for political reform. Also, the spread on net interest margins narrowed (surprisingly) in the past quarter. Though, I’m not certain if every bank underwent some NIM compression. I believe JPM and BofA kind of struggled in this regard despite interest rates moving higher, but still posted a modest improvement of 10 to 20 bps of margin expansion. Generally speaking, the bank earnings were mixed. Wells Fargo suffered whereas JPM and BofA have had the best exposure to both consumer/investment banking. Citigroup beat on earnings, but the top line fell woefully short. The investment banks are starting to recover with expectations mounting of an IPO-deluge in 2017 leading to a lot of underwriting/deal fee activity. However, it's hard to tell if this hype is priced into the stocks already.