The U.S. Federal Reserve has officially announced that it will ease its quantitative tightening program from June onwards. This decision can be seen as a leading indicator of an interest rate pivot, which some investors might find encouraging. However, I would like to exercise caution in interpreting this development, as an expected economic slowdown appears to be the most probable reason behind it.

An economic slowdown paired with lower interest rates could spike credit spreads. Moreover, my analysis tells me that the VIX is positioned for a spike. Such events would lead to a drawdown in the broader stock market and excess losses in cyclical sectors such as financial services.

Sure, my outlook is merely one of many. However, if you share my sentiment, then here are three financial stocks to avoid.

Blackstone (BX)

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Many might question Blackstone’s (NYSE:BX) inclusion, but there are valid reasons behind my decision.

Blackstone’s equity and debt real estate exposure spans over 30% of its managed assets. I foresee significant structural events occurring within the real estate space. For instance, prepayment risk links mortgage valuations to interest rate levels, thus introducing valuation risk in the event of an interest rate pivot. Moreover, commercial capitalization rates are forecasted to increase for the remainder of the year, which adds valuation risk to equity real estate.

Furthermore, Blackstone’s credit and insurance segment comprises another 30% of its total assets under management. I don’t have an opinion on insurance, but direct lending is under pressure. As a barometer, fourth-quarter data shows that the credit card delinquency rate has surged to 3.1% from 2.27% a year ago. Additionally, an interest rate pivot might introduce higher credit spreads, leading to lower high-yield loan valuations.

Lastly, BX stock’s price-to-book ratio of 12.12x highlights valuation risk. Perpetual asset base growth deflects some of its valuation risk, but I still consider the stock grossly overvalued.

Upstart Holdings (UPST)

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UPST (NASDAQ:UPST) stock is secured by an innovative American company that operates as a loan intermediary. Although intermediation is nothing new, Upstart’s novelty lies in its use of artificial intelligence and modern asset pricing techniques.

Upstart Holdings’ stock has surged by more than 70% year-over-year, illustrating the favorable lending environment. However, I think a pivotal point is near; here’s why.

A higher-for-longer interest rate environment has taken its toll. For example, Upstart’s fourth-quarter earnings report communicated $1.3 billion in loan originations, translating into a 19% year-over-year reduction.

The data points mentioned above illustrate that borrowers are discouraged. However, it doesn’t end there. Upstart’s fourth-quarter conversation rate improved to 11.6% from 10.5% a year ago, conveying lender optimism. However, as mentioned before, lower implied interest rates might spike credit risk and, in turn, deplete lenders’ conviction.

Lastly, key metrics suggest Upstart’s stock possesses valuation risk. Its price-to-sales ratio of 3.38x is relatively high compared to the sector median of 2.55x. Moreover, Upstart has a price-to-book ratio of 3.01x, which demonstrates absolute valuation risk.

Independent Bank Group (IBTX)

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Independent Bank Group (NASDAQ:IBTX) faces numerous qualitative and quantitative headwinds that could soon be exacerbated by systematic pressure.

Firstly, Piper Sandler (NYSE:PIPR) recently cut IBTX stock to underweight on the basis of earnings concerns. According to Stephen Scouten of Piper Sandler: “In the meantime, IBTX looks poised to underperform peers from a PPNR and overall profitability perspective, and so we think that shares will lag over the next 12 months until investors get some certainty into a 4Q25 run-rate and the 2026 earnings potential of this franchise,”

I concur with Scouten’s outlook. Independent Bank Group’s first-quarter earnings settled below estimates as it suffered a revenue shortfall of $5.27 million. Although its earnings-per-share shortfall of one cent is no biggy, there are forward-looking earnings-based risk factors worth considering.

The primary risk here is the uncertain credit environment. Independent Bank Group reported no annualized net charge-offs in its first quarter, but as mentioned before, credit risk could spike in due course. Thus, higher net charge-offs are highly probable.

Furthermore, Independent Bank Group has a Total Common Equity Ratio of 7.62%, which I consider low. Remember that regulators are working on tightening capital adequacy rules, which jeopardizes the bank’s risk metrics even further.

In essence, I think a shaky credit market paired with stricter capital adequacy rules will lead to Independent Bank Group de-risking its investment exposure, concurrently raising its profitability risk.

IBTX stock’s price-to-book ratio of 0.64x isn’t bad—in fact, it is quite good. However, given the abovementioned structural concerns and inbound systematic risk, I remain skeptical.

On the date of publication, Steve Booyens did not hold (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.