“Epic” may be an overused word in financial markets parlance, but there is no doubt this is a big week on the earnings front for some of the most familiar names in financial services exchange traded funds.
Earnings updates from major U.S. banks are particularly important this earnings season because the group is expected to be the standard bearer for S&P 500 earnings growth. Financial stocks are poised to have the highest earnings growth rate of any sector for the fourth quarter of 2013, CNN Money reports, citing FactSet Research.
Although financials have the burden of leading S&P 500 earnings, the sector is not richly valued. U.S. banks look inexpensive compared to other sectors. Despite the surge in bank stocks last year and the sector’s reputation for being one of the better drivers of S&P 500 earnings growth, the group is not getting much respect in terms of 2014 earnings expectations. As of early December, financial services had the lowest 12-month forward P/E. At forward P/E of 12.7, financials are seen as less expensive than staples and utilities, among others. [Fun With Financials in 2014]
So some earnings surprises and upbeat guidance out of the major holdings in an ETF such as the Financial Select Sector SPDR (NYSEArca: XLF) could go a long way to restoring hopes for a strong finish to January.
Not only are financials the second-largest sector weight in the S&P 500 behind technology, but XLF is by far the largest U.S. sector ETF with over $17.2 billion in assets under management. That is good enough to make XLF the seventeenth-largest of any kind in the U.S. [More Evidence Financials Aren’t Getting Any Love]