What’s the deal with financials and the sectors’ related exchange traded funds (ETFs)? Are we at the bottom yet?

That’s a tough one to call, because for every bit of hopeful news, there’s yet another piece of bad news. Perhaps some small consolation can be taken by the appearance that the news at least seems to be getting less bad.

To wit:

  • The worst bit of news was the Lehman Brothers (LEH) writedown of $2.8 billion. CEO Richard S. Fuld Jr. pledged more transparency into the company’s business and assets. But some analysts wonder if Lehman took sufficient writedowns, citing past instances in which other companies said they were done taking them, then took more anyway.
  • Today, Goldman Sachs (GS) announced that its second-quarter earnings fell 10%, but they beat Wall Street’s low expectations thanks to higher fees from asset management and stock underwriting, reports Joe Bel Bruno for the Associated Press. But one analyst felt that the summer quarter could slow things down for the bank: Goldman Sachs benefited from a lucrative underwriting operation, assisting banks in their capital-raising efforts this spring. Those opportunities could dry up.
  • Two Bear Stearns hedge fund managers are close to being charged with securities fraud. The collapse of those funds last year helped kick off the credit
    crisis. The managers could be charged with securities fraud within the
  • American International Group (AIG) put a new CEO in place. AIG is the world’s largest insurer, has has lost billions in bad bets on the mortgage market, reports Madlen Read for the Associated Press.
    In the first quarter, they lost $7.8 billion. The new CEO, Robert
    Willumstad, says they plan to conduct a thorough review of AIG’s
    operations. The company is also facing a regulatory probe by the
    Securities and Exchange Commission (SEC), so its troubles could just be

Among the financial ETFs that are affected:

  • Financial Select Sector SPDR (XLF), down 17.8% year-to-date
  • Vanguard Financials (VFH), down 15.9% year-to-date
  • First Trust Financials AlphaDEX Fund (FXO), down 14.7% year-to-date
  • iShares Dow Jones US Broker-Dealers (IAI), down 23.5% year-to-date


The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.