Citigroup Earnings Drive Outperforming Bank ETFs

July 15th at 9:08am by John Spence

A nearly 3% rise in Citigroup (NYSE: C) shares Monday on better-than-expected earnings may provide more fuel for bank and financial sector ETFs that have been outperforming lately.

Citi shares were in focus to start the week after the banking giant said its second-quarter profit rose 42% from the year-ago quarter.

The stock is a top holding in financial and bank ETFs such as Financial Select Sector SPDR (NYSEArca: XLF), iShares US Financial Services (NYSEArca: IYG) and PowerShares KBW Bank Portfolio (NYSEArca: KBWB). [ETF Chart of the Day: Financials]

Financial and bank ETFs have been performing well lately on improving economic data and rising interest rates. In particular, regional banks have been hot as Treasury yields climb. [Regional Bank ETF and Treasury Yields]

“Banks have spent several quarters talking about their struggles with historically low interest rates. In effect, the low rates have slammed the amount they can earn on loans, what’s known in the industry as net-interest income, because they collect less for each loan,” reports WSJ.com’s MoneyBeat. “That’s lowered the important net interest margin, which is essentially the profitability measure on lending operations.”

Last week, JP Morgan (NYSE: JPM) and Wells Fargo (NYSE: WFC) announced quarterly results that surpassed Wall Street forecasts. Later this week, investors will get earnings reports from Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS).

XLF, the financial ETF, is up about 25% year to date, while the S&P 500 has climbed roughly 19%. XLF was up 0.5% in Monday’s premarket.

Financial Select Sector SPDR

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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