Market observers and participants remain torn over whether the Federal Reserve will raise interest rates at its next meeting later this month. Some sectors and the corresponding exchange traded funds are really hoping the Fed decides to boost rates, namely the financial services sector.
Until last month, data suggested traders had been betting the Fed will boost borrowing costs at its September meeting, but some rate-sensitive asset classes say otherwise. Actually, Treasury yields say otherwise and 10-year yields now reside at multi-month lows, somewhat crimping ETFs tracking sectors positively correlated to rising rates, such as financial services funds. [What These ETFs Say About Rates]
But Treasury yields have ebbed, dragging the Financial Services Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, lower in the process.
“Financial stocks have gone from leading the S&P 500 early this summer to become the worst-performing sector in the last month. Within the sector, bank stocks have been the hit the hardest, falling 9.6 percent in one month,” reports CNBC.
After most of the financial industry revealed quarterly earnings, seven big banks are still trading below their book value, reports Jon C. Ogg for 24/7 Wall St. Book value is an accounting value that tallies the total value of a company’s asset, minus liabilities and intangibles, and compares it to the company’s market value.
However, the cheapness of U.S. banks belies the strength of the financial sector. Over few years, banks have shed unprofitable businesses and assets while bulking up capital to return some to shareholders through stock buybacks and dividends, the Wall Street Journal reports.