Strength in shares of banking giants Citigroup (NYSE: C) and Bank of America (NYSE: BAC) helped lift unloved exchange traded funds (ETFs) indexed to the financial sector on Tuesday.
Bank of America shares were up more than 2% in morning trade, while Citigroup rose 1%. Financial Select Sector SPDR Fund (NYSEArca: XLF) was fractionally higher.
Bank stocks have been weak after a disappointing earnings season. Concerns over new regulations and elusive loan growth have also pressured the sector. [Weak Quarter Knocks Expectations for Bank ETFs.]
However, many banks are raising or bringing back dividends, or buying back shares, as they return capital to shareholders.
“Given continued revenue headwinds, one would think there would be more willingness among banks to consolidate,” Deutsche Bank analysts led by Matt O’Connor wrote in a note this week.
“However, there seems to be little pressure on potential sellers and most banks believe they should be buyers and continue to invest in hopes of boosting revenues (vs. aggressively cutting costs or looking to team up with another bank),” they said. “When will M&A activity pick up and what will be the catalyst for renewed activity?”
The financial ETF is sitting near its 50-day moving average.
Financial Select Sector SPDR Fund
