Financial stocks and related exchange traded funds are leading a stagnant market Monday, with investors anticipating the sector to dodge a so-called earnings recession as firms reveal first quarter results this week.
On Monday, the Financial Select Sector SPDR (NYSEArca: XLF) was up 0.5%, iShares U.S. Financials ETF (NYSEArca: IYF) was 0.5% higher and Vanguard Financials ETF (NYSEArca: VFH) gained 0.6%. [Investors May Be Overlooking Financial Sector, ETFs]
While the S&P 500 as a whole is expected to see negative earnings results, the financial sector will likely hold up. According to Bank of America Merrill Lynch, S&P 500 first quarter earnings are expected to decline 13.9% quarter-over-quarter and 6.3% year-over-year, reports David Pett for Financial Post.
However, BofAML anticipates financials to see earnings growth of 8.2% quarter-over-quarter and 4.6% year-over-year. Additionally, Jason Goldberg, analyst at Barclays Capital Inc., believes about 35% will exceed consus expectations, including Goldman Sachs Group (NYSE: GS), JPMorgan Chase (JPM) and Citigroup (NYSE: C).
“We expect less than half our coverage to grow EPS for the third straight quarter,” Goldberg said in the Financial Post article. “We look for revenues to increase 2% year-over-year and be relatively stable with the fourth quarter.”
Fueling the optimistic expectations, the sector has benefited from higher fee income, partly from increased trading revenues and improved mortgage origination. [Forex Volatility Helps Lift Broker-Dealers ETF]
First quarter earnings will officially kick off Tuesday, with JPMorgan Chase & Co. and Wells Fargo (NYSE: WFC) reporting results, writes Chris Lange for 24/7 Wall Street.
On Wednesday, Bank of America (NYSE: BAC) and Charles Schwab (NYSE: SCHW) will report results.
American Express (NYSE: AXP), Citigroup, and Goldman Sachs will reveal first quarter earnings on Thursday.
Investors can track broad market moves through the ETFs as many of the financial sector funds include heavy exposure to these companies. For instance, XLF, the largest financial sector ETF, top holdings include WFC 8.5%, JPM 7.7%, BAC 5.5%, C 5.3%, GS 2.6% and AXP 2.3%. IYF holds WFC 6.4%, JPM 5.8%, BAC 4.1%, C 4.0%, GS 2.0% and AXP 1.7%. Lastly, VFH includes WFC 6.9%, JPM 5.9%, BAC 4.3%, C 4.1%, AXP 1.9% and GS 1.9%.
Financial Select Sector SPDR
For more information on the financials sector, visit our financial category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of IYF.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.