ETFs pegged to the U.S. banking sector are rallying along with top holdings that have announced dividend increases and share buybacks after passing the Federal Reserve’s latest stress tests.

SPDR S&P Bank ETF (NYSEArca: KBE) was up 1.5% in early trading Wednesday following the previous day’s rally.

The Fed said four of the 19 banks that received a financial bailout didn’t pass the test, including Citigroup (NYSE: C). The banks must submit capital plans to the Fed.

JP Morgan (NYSE: JPM), Wells Fargo (NYSE: WFC) and U.S. Bancorp (NYSE: USB) were among the banks that announced dividend hikes and share repurchase plans. [Financial ETFs are Money in the Banks]

Banks are outperforming the market on better employment data and improved balance sheets. The bank ETF is up 24.8% the past three months, compared with a 14.5% gain for the S&P 500, according to Morningstar. Banks were the market’s unloved sector last year as the sector ETF lost 22%.

Shares of Bank of America (NYSE: BAC), which passed the stress test, rose 4% Wednesday morning to near $9 a share. The stock is the second-largest holding in the bank ETF.


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.