A corner of the stock market that soared on tax cuts and deregulation was one of the worst performers in 2018.In an interview with Business Insider, Alicia Levine, the chief market strategist at BNY Mellon Investment Management, explained why investors should be hunting for bargains there.In her view, investors' fears about a global recession are overblown.Once the poster child of deregulation and tax cuts, the financials sector is among the biggest losers in the stock market's latest swoon.The sector dumped 13% in 2018, besting only industrials, materials, and energy in the market's worst year since 2008."That was the pain trade," said Alicia Levine, the chief market strategist at BNY Mellon Investment Management, which oversees $1.9 trillion in assets. "If you owned the financials, you were not feeling too smart."Last year, the major sore point for investors with money in financials was the fall in long-term borrowing costs driven by concerns about economic growth, coupled with the rise in short-term interest rates driven by the Federal Reserve.This dual trend shrunk the spreads between Treasury yields of various maturities, known as curves. The widely watched gap between 2- and 10-year yields flattened to its lowest level of this cycle, while the 3 and 5-year curve went negative, or inverted, for the first time since 2007.These developments raised broader fears of a recession, while signaling a narrower gap between the higher interest rates at which banks lend and the lower rates at which they borrow.In other words, a flattening yield curve spelled trouble for bank profits.Despite these valid concerns, Levine said investors were dumping financials as if the global economy was already mired in a recession. Even now, with the known slowdown in China's economy and the likely slump in the US during the first quarter, she doesn't think a recession is imminent.The S&P 500 financial sector has regained some of its mojo to start 2019, but is still down nearly 14% from where it traded a year ago. That's good news for investors who want to take advantage of lower valuations and cheaper stock prices to hunt for bargains. "I think you have to go where stocks have been beaten up and where the fundamental business is still okay, and I think those are the large financials," Levine said.Should the economy stay afloat, companies including banks, brokers, and insurers would be among the main beneficiaries. That's because they'll get more business from consumers who would be in better financial shape to borrow and splurge.A strong US economy could even prompt the Fed to raise interest rates again this year, defying trader forecasts that there'll be no hikes. This would serve as a twofold jolt to financials: higher margins, and more demand for credit from borrowers."They're not going to hold off forever," Levine said."If all signs are that we have a good-enough economythat we're not falling off a cliff, that we've stabilizedsometime in the summer, we could have a hike."SEE ALSO:GOLDMAN SACHS: Record-high uncertainty about the global economy is squashing the chances of a stock-market comeback, but 2 sectors will help investors thrive no matter whatJoin the conversation about this storyNOW WATCH: I went on Beyonc's 22-day diet ' and I lost 15 pounds
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