In the week of October 12, Wells Fargo (NYSE: WFC), JP Morgan (NYSE: JPM), Bank of America (NYSE: BAC) and Citigroup (NYSE: C) are scheduled to report earnings. The four make up 28% of XLF. Specifically, WFC is 8.5%, JPM is 8.0%, BAC is 5.9% and C is 5.3%.
In a research note, John Butters, Senior Earnings Analyst at FactSet, said investors should be watching Bank of America during the upcoming earnings season, pointing out that it is the largest positive contributor to year-over-year earnings in the S&P 500. However, excluding BAC, the estimated earnings growth rate for the financials sector would fall to 0.7% from 8.2%, which suggests a less favorable outlook for other financial companies in the upcoming earnings season.
ETF investors who are worried about the upcoming financial earning season can also hedge the sector through various levels of leveraged inverse strategies. For instance, the ProShares Short Financials ETF (NYSEArca: SEF) takes the single inverse or -100% of financial stocks, while the ProShares UltraShort Financials (NYSEArca: SKF) takes a leveraged -200% of financials. Additionally, for -3x or -300% performance, there are the ProShares UltraPro Short Financials (NYSEArca: FINZ) and Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ).
For more information on the financials sector, visit our financial category.
Max Chen contributed to this article.