Exchange traded funds that track some of the worst areas of the year were among the best performers Tuesday as bargain hunters piled into downtrodden sectors.
Consumer discretionary and bank stocks were led the advance in U.S. markets on Tuesday. For instance, the PowerShares KBW Bank Portfolio (NYSEArca: KBWB) gained 3.3%, SPDR S&P Bank ETF (NYSEArca: KBE) rose 3.3%, SPDR S&P Regional Banking ETF (NYSEArca: KRE) increased 3.1% and iShares U.S. Regional Banks ETF (NYSEArca: IAT) advanced 3.6%. [Bank ETFs Down but Not Out]
“I think the larger focus has now switched to financial stocks,” Peter Jankovskis, co-chief investment officer of OakBrook Investments, told Bloomberg. “People turned their focus on the impact of negative rates spreading around the world, and the impact that might have on banks’ profits.”
The broader Financial Select Sector SPDR (NYSEArca: XLF), which includes a 34.8% tilt toward the bank sector, rose 2.0% Tuesday, but the fund was among the worst performing S&P 500 sector-related ETFs, falling 14.0% year-to-date.
Banks and the financial sector have been losing momentum on concerns that weaker economic growth would push off a Federal Reserve rate hike and the increased credit risk in the energy sector due to the collapse in oil prices.
Additionally, on Tuesday, the iShares US Consumer Services ETF (NYSEArca: IYC) advanced 2.1%, Vanguard Consumer Discretionary ETF (NYSEArca: VCR) was up 2.4% and the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) was 2.3% higher. Year-to-date, IYC fell 10.1%, VCR declined 11.4% and XLY decreased 10.7%.
After the correction, some may be stepping back into a cheaper market. According to the Bank of America, investors lowered equity holdings this year and cut banks at the quickest rate in almost a decade on the market fall off while raising cash allocations to their highest level since November 2001. BofA strategists led by Michael Hartnettt argue that these heightened cash levels represent an “unambiguous” buy signal.
SPDR S&P Regional Banking ETF
Max Chen contributed to this article.