Investors have become all too familiar with the tale of woe confounding the Financial Select Sector SPDR (NYSEArca: XLF) and rival financial services exchange traded funds. XLF is down 7.1% year-to-date, making it the worst performer among the sector SPDR ETFs.
Some of XLF’s rivals are performing even more poorly. Although expectations are in place for a dismal batch of first-quarter earnings reports from big banks, the Federal Reserve is widely cited as the primary burden currently facing the financial services 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.
“The outlook for the medium term, until we start to see a Fed hike coming, is going to be pretty gloomy for the banks,” said Gina Sanchez of Chantico Global in an interview with CNBC.
However, there are some investors that are seeing some positive signs from the downtrodden sector.
[related_stories]“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.
Sanchez told CNBC that margins are improving for banks, a trait she calls a “bright spot” for the group at a time when margins are contracting for the rest of the S&P 500.
Financial Select Sector SPDR
