When it comes to higher interest rates bolstering financial services ETFs such as XLF, the good news is that the number of traders betting that the Fed will boost borrowing costs following its December meeting has climbed in recent days.
One point of attraction for XLF and rival financial services ETFs has been the discounted valuations of big bank stocks. 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.
“Even if financials manage to decouple from oil, some market participants are not expecting any outsized benefits for the sector from the change in Fed policy, which is expected to be a gradual tightening of interest rates,” adds Reuters.
Financial Select Sector SPDR