U.S. banks are still on more solid footing than their international counterparts. In the U.S., the financial firms have stronger capital positions than their European peers, we have also mostly moved past the regulatory malaise, and there is room for further efficiency and returning capital to shareholders.
Moreover, valuations have dropped considerably as banks trade roughly at book value, which may make the sector a cheaper bet compared to other areas.
XLF and rival ETFs have been under pressure following the Brexit outcome, but there are other factors at play, including the Federal Reserve’s refusal to raise interest rates to this point in 2016.
“Generally speaking, our banks reported earnings that exceeded expectations. The upside relative to consensus has averaged 3%, with only Wells Fargo simply in line with forecasts. All in, second-quarter earnings per share are tracking up 12% quarter-to-quarter evidencing the sequential improvement in capital markets related revenue and a 2% quarter-to-quarter reduction in credit costs,” adds Credit Suisse.
Financial Select Sector SPDR