- Financial sector ETFs maintained momentum Wednesday after stumbling at start of year
- Global financial sectors also rallied on Wednesday
- Market observers appear to be pouncing on a sector that has been underperforming in 2016
Despite a relatively tepid Wednesday, financial sector exchange traded funds maintained their momentum as bargain hunters jumped back into an oversold market segment.
On Wednesday, the Financial Select Sector SPDR (NYSEArca: XLF) rose 0.7%, iShares U.S. Financials ETF (NYSEArca: IYF) gained 0.4% and Vanguard Financials ETF (NYSEArca: VFH) added 0.7%. The financial sector ETFs are trading back above their short-term, 50-day simple moving average after stumbling at the start of the year. Year-to-date, XLF declined 8.5%, IYF fell 7.5% and VFH dropped 7.9%.
Meanwhile, bank sector ETFs were leading the charge Wednesday, with PowerShares KBW Bank Portfolio (NYSEArca: KBWB) up 1.5%, SPDR S&P Bank ETF (NYSEArca: KBE) 1.5% higher, SPDR S&P Regional Banking ETF (NYSEArca: KRE) up 1.6% and iShares U.S. Regional Banks ETF (NYSEArca: IAT) advancing 1.3%.
The S&P 500 Financial index has gained 11% from its mid-February nadir, the Financial Times reports.
Moreover, global financial sectors were also rallying Wednesday, with the Euro Stoxx 600 Bank index up 18% since mid-February and Japan’s Topix Banks index almost 13% higher for the same period.
The iShares MSCI Europe Financials ETF (NYSEArca: EUFN), which tracks European financial companies, gained 2.0% Wednesday.
Meanwhile, the WisdomTree Japan Hedged Financials Fund (NYSEArca: DXJF), which follows Japanese financials and hedges against currency risks, increased 3.1%. Year-to-date, EUFN declined 14.4% and DXJF
Some market observers may be pouncing on a sector that has been underperforming for most of the year.
“We entered fairly oversold conditions by mid-February that didn’t really read across to the global macro environment,” Simon French, chief economist at Panmure Gordon & Co., told the Financial Times.
A rebound in the oil market may also be diminishing fears of potential energy defaults dragging down banks. Brent crude oil futures are back up 20% since its mid-February lows.
Moreover, the recovery in financials may reveal sentiment that central banks won’t throw a wrench into the system and fuel volatility.
The firmer financials reflect expectations that “the world’s central bankers will both keep rates lower for longer and put up with a little more inflation, especially in the US,” Nicholas Colas, chief market strategist at Convergex, told the Financial Times, explaining that the policy approach should push up long-dated rates and provide a boost for bank’s net interest margin.
Financial Select Sector SPDR
Max Chen contributed to this article.