Strength in large-cap bank stocks such as Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC) on Wednesday wasn’t enough to lift financial sector exchange traded funds before the Federal Reserve announcement.
Financial Select Sector SPDR Fund (NYSEArca: XLF) was flat in morning dealings but could see volatility in the afternoon as markets get the Fed’s view on interest rates and the economy. The sector fund is down about 5% so far this year with bank stocks pressured by a sluggish economy and regulatory concerns.
Traders have been using options contracts on a bank ETF to take a bullish stance on the sector before today’s Fed decision, an analyst said Wednesday.
On Tuesday, the “bullish trend” in SPDR KBW Bank ETF (NYSEArca: KBE) options continued with sellers of puts observed, said Paul Weisbruch at Street One Financial.
Recently, call buyers in the bank ETF have been positioning for a rebound in the downtrodden sector. [Bank ETF Options Traders Look for Bounce]
“KBE is large cap bank oriented, and the ETF has risen about 4% from its 52 week low touched a few weeks ago,” Weisbruch wrote in a note Wednesday.
Shares of Citi and Wells Fargo were up about 1% in recent trading, while Bank of America (NYSE: BAC) and JP Morgan (NYSE: JPM) were fractionally higher before the Fed.
SPDR KBW Bank ETF
Editor’s note: For more information on Street One ETF research, contact pweisbruch@streetonefinancial.com.
