Well-documented have been the struggles of the financial services sector this year. Exchange traded funds tracking the second-largest sector weight in the S&P 500, including the Financial Select Sector SPDR (NYSEArca: XLF), have been stymied by the Federal Reserve’s reluctance to raise interest rates, among other factors.
Down almost 7.5% year-to-date, XLF is one of the worst-performing sector SPDR ETFs this year. Many rival financial services ETFs have been just as bad if not worse than XLF. Few have been better. When first-quarter earnings start pouring in later this week for major XLF holdings, investors probably should expect those profit reports to boost the sector.
“Analysts are expecting first-quarter reports in the financial sector to show a 9.2-percent decline in earnings and a 0.2-percent rise in sales,” according to Reuters. “Four of the S&P 500’s top-weighted banks, J.P. Morgan Chase, Wells Fargo, Bank of America and Citigroup, are set to report grim first-quarter revenues and profits starting on Wednesday.”
Those stocks are all top 10 holdings in XLF and comparable financial services ETFs. Those are ominous statements to be sure, but making matters are the more downbeat for XLF and rival financial services funds is that few professional traders see legitimate near-term upside looming for the sector. In fact, some pros are increasingly downbeat on bank stocks.
However, there are some investors that are seeing some positive signs from the downtrodden sector.
“Bank shares are cheap compared to the rest of the market. Companies in the S&P financial sector are selling at roughly 12.8 times estimated earnings over the next 12 months, compared with 16.7 times forward earnings for the broader S&P 500,” according to Reuters.
Additionally, there are pockets of strength within the sector, including insurance stocks.
[related_stories]U.S. life insurance premiums in 2015 grew at their fastest pace in four years as several large life insurers reversed the flat or negative growth rates they experienced in recent years. Life insurers in the U.S. combined to post 4.5% growth in direct written premiums in 2015, compared to 2.4% in 2014. The industry had a compound annual growth rate of 2.7% from 2011 to 2015. The figures are based on an analysis by S&P Global Market Intelligence of total direct premiums written data, which includes first year, single and renewal premiums of U.S. life insurers for the year ended Dec. 31, 2015.
“Bank shares could become more appealing if the companies can show a relatively healthy energy portfolio or that they are losing less money than expected on energy loans. Their forecasts might also strengthen if oil prices are in fact settling, as has seemed to be the case recently,” adds Reuters.
Financial Select Sector SPDR
