Financial services stocks and exchange traded funds, such as the Financial Select Sector SPDR (NYSEArca: XLF), have struggled to start 2016, but at least one well-known analyst views the sector as a safe-haven bet.
With higher interest rates in place, financial services ETFs entered 2016 as potentially important tells regarding what investors should expect from equities this year. The sector is the second-largest weight in the S&P 500 behind technology.
“The potential exposure of banks to the energy-dominated U.S. high-yield corporate bond markets has unnerved investors, and caused financial and energy shares to stall during the two trading sessions that followed the hike. Stocks in both those sectors have been closely correlated in recent weeks,” reports Reuters.
However, there is another important reason to consider bank stocks and ETFs: Rising profitability. In the case of regional banks, that profitability is expected to be enhanced if the Fed proceeds with boosting borrowing costs for the first time in nine years.
Previously, the Federal Reserve’s decision to hold off on an interest rate hike, ongoing economic weakness and concerns over trading revenues have weighed on the financial sector’s outlook.