Financial exchange traded funds were the worst-performing sector ETFs on Thursday after JP Morgan (NYSE: JPM) announced quarterly results and a cautious outlook for credit markets.
Financial Select Sector SPDR (NYSEArca: XLF) fell as much as 3% Thursday morning before paring the loss.
JP Morgan’s quarterly results showed that credit quality improvement slowed while investment banking revenues were weaker than expected, particularly trading results, according to a research note from Sterne Agee.
Large-cap financial stocks are down about 20% on the year but have rallied 13% since a week ago Tuesday, according to ConvergEx Group Chief Market Strategist Nicholas Colas.
“The dramatic recovery in U.S. equity market prices from their week-ago lows has all the flavor of a ‘Walk towards the light’ brush with death,” he wrote in a report Thursday. “The most important indicator of that return to the world of the living is the rally in financials. That also makes future action in this group the make-or-break factor in any further market advance.”
The financial ETF has bounced off its 52-week low set earlier this month and is now hovering around its 50-day simple moving average. It is down about 16% over the past three months. [Financial ETF Rises on Eurozone, Earnings Hopes]
“Many franchise names still trade at meaningful discounts to book value,” wrote Colas, the strategist. “A further move higher in the financials will validate a continued rally, as confidence in the global financial system is an important key to economic growth. And if that confidence wanes in the coming weeks, markets may find themselves in the familiar position of yet another Near Death Experience.”
Financial Select Sector SPDR
