Heading into this year, many market observers expected four Fed rate hikes, a number that subsequently dropped to two and now, in the eyes of some experts, zero.
ETFs such as the Financial Select Sector SPDR (NYSEArca: XLF), iShares U.S. Financials ETF (NYSEArca: IYF) and the Vanguard Financials ETF (NYSEArca: VFH) 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.
Related: Financial Sector ETFs Plunge on Brexit Contagion
“It is no wonder why the group trades at such a low multiple to other sectors considering the historically low interest rates, as Banks’ earnings are directly correlated to the Federal Funds rate. A rising rate environment also correlates with a strong economy, and translates to rising loan demand, and greater profitability on loans,” adds See It Market.
Financial Select Sector SPDR
