Throughout 2023, the financial sector and its financial stocks continued to perform relatively well. Specifically, the sector provided 4.6% returns from financial stocks within the S&P 500. Additionally, the sector did particularly well in November, providing 10.6% returns overall within the same grouping of equities.

For context, the tech sector and the consumer discretionary sector have performed very well while other sectors including energy and utilities have lagged. That puts the financial sector somewhere in the middle.

There’s a growing sense within the markets that the worst is behind us. Many are optimistic that the sector will continue to rebound. However, I still wouldn’t invest in any of the financial stocks listed below. Let me explain why.

Wells Fargo (WFC)

Wells Fargo (NYSE:WFC) is essentially in a position of perpetually being the worst of the big banks. Plainly put, Wells Fargo continues to run amok of the law.

The company infamously got caught for its cross-selling scandal in which it fraudulently created millions of accounts on behalf of its clients without their knowledge. Then, the company got fined again, this time for $125 million in August of this year, for further transgressions. So, it’s fairly easy to understand why a lot of people have trouble trusting the company. Place your money in one of its accounts and expect that the company might be doing something unscrupulous, or flat out illegal with your capital. 

Wells Fargo also recently announced that it anticipates higher than expected severance expenses in the fourth quarter. The company continues to be under external surveillance in relation to its account scandal. that is preventing it from taking on a larger asset base. In turn, that is likely a contributory factor to upcoming firings. Wells Fargo simply seems to be a large firm that is perpetually run very poorly.

Upstart Holdings (UPST)

Upstart Holdings (NASDAQ:UPST) is the kind of stock that always tends to get swept up in the hype associated with innovation. Then, it fails to meet those expectations and investors slowly fall by the wayside.

It’s always about the promise of the new technology to better a traditional process. The current project deals with artificial intelligence (AI). The company continues to build an AI-based lending platform that continues to lose money.

While I can’t say that I see any immediate reason for Upstart Holdings to get crushed, there’s a lot to dislike. I’ll be straightforward here: I remain highly skeptical of the application of AI for lending purposes. I don’t think it works, and the reason is that there is a very recent precedent in the real estate iLending firms. Those firms promised to leverage AI to improve the process of originating home mortgages. However, they failed to accurately predict the effects of rising inflation and impending rate hikes from the Federal Reserve.

Upstart Holdings promises to, by some unknown forces, somehow improve that process. The company’s financial financial results more than speak for themselves. If you ask me, they are highly reflective of the continued problems with AI based lending. 

LendingTree (TREE)

LendingTree (NASDAQ:TREE) is simply another financial firm that has been allowed to get too large despite its clear inability to operate well.

It’s a financial stock that I think any holders should consider selling at this point. Investors who don’t own it should consider themselves lucky. It’s another lender, like Upstart Holdings, that utilizes AI to improve the process of lending.

And like many other financial stocks, LendingTree has been roiled by increasing rates and falling demand. In the third quarter, revenues fell by 35% to $155.7 million. 

It actually doesn’t matter that much because during both of those periods its losses were similar. LendingTree lost $158.7 million in the third quarter of 2022. The company lost $148.5 million during the third quarter of this year.

LendingTree is essentially a company that takes in a dollar of revenue and produces roughly $1 in losses. Investors should steer clear of TREE stock even with the expectation of declining interest rates in early 2024.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.