Banks and financial stock exchange traded funds are leading the markets Friday as the robust jobs number hastened calls for an interest rate hike.
On Friday, the SPDR S&P Bank ETF (NYSEArca: KBE) rose 1.8%, SPDR S&P Regional Banking ETF (NYSEArca: KRE) increased 1.5% and Financial Select Sector SPDR (NYSEArca: XLF) advanced 1.1% while the SPDR S&P 500 ETF (NYSEArca: SPY) dipped 0.1%. [Small Bank, Financial ETFs Could Capitalize on Looser Regulations]
All 24 lenders of the KBW Bank Index strengthened Friday, with Regions Financial Corp (NYSE: RF) surging 4.5%, and the financial sector led gains in the S&P 500, following the better-than-expected January jobs data, which capped the largest three-month jump in 17 years, reports Michael J. Moore for Bloomberg.
Both KBE and KRE more-or-less equally weight holdings and include a 1.5% and 1.3% tilt toward RF, respectively. XLF follows a cap-weighted index, with a 0.4% position in RF, and has a 35.0% weight toward banks.
The stronger jobs number fueled speculation that the Federal Reserve would accelerate its rate hike outlook as the sustained job growth reflects a growing economy. The fixed-income market also reflected the sentiment, with 10-year Treasury bond yields rising 11 basis points to 1.93% Friday.
“The data today will only serve to boost the Fed’s confidence that they are reading the labor market correctly,” Drew Matus, deputy U.S. chief economist for UBS Group AG, said in a note
The low rate environment over the past six years has cut into lending margins for banks. However, rising rates should help bankers see wider profit margins.
“The last part of the puzzle for the bank recovery from the crisis is rising short-term interest rates,” Gerard Cassidy, an analyst at RBC Capital Markets, said in the article. “Investors were, prior to today’s employment report, convinced that the Fed was not going to raise rates in June, which weighed on the bank stocks throughout the first part of this year.”
For instance, Fred Cannon, a KBW Inc. analyst, would cut bank average earnings estimates by 5% to 6% if the Fed keeps interest rates unchanged this year.
SPDR S&P Bank ETF
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Max Chen contributed to this article.