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.
“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