Investors are probably tired of hearing about it at this point, but the financial services sector, the S&P 500’s second-largest sector weight, has been hamstrung this year by the Federal Reserve not raising interest rates.
Last month, the Fed opted to leave interest rates on hold following the conclusion of its most recent meeting Wednesday, citing concerns about Brexit, among other factors. Obviously, no interest rate hikes do not favor financial services stocks and exchange traded funds, such as the Financial Select Sector SPDR (NYSEArca: XLF).
However, some analysts are bullish on big bank stocks. One the primary catalysts that previously lured investors to bank ETFs, that being speculation of higher interest rates, is largely off the table.
SEE MORE: Financial Sector ETFs Maintain Momentum
Some technical analysts see encouraging signs on the charts of major bank indexes.
“The KBW Bank Index is attempting to break out of a one-year downtrend, and while it is still early to say banks are relative leaders, we see enough evidence to begin buying the stronger bank stocks,” said Jonathan Krinsky of MKM Partners in a post by Ben Levisohn of Barron’s.
[related_stories]The widely followed KBW Bank Index can be accessed by the PowerShares KBW Bank Portfolio (NYSEArca: KBWB).
July’s jobs report, out last Friday, boosted bank ETFs, giving investors hope that the group will finally get the long awaited rate hike.
“Notably, JPMorgan broke out on Friday and overall contributes to the market’s positive tone. JPM has been diverging from yields for a few months now and its recent strength may be some evidence that the tactical bounce in yields has more to go. Positioning in 10-year notes remains aggressive on the long-side, and the recent back-up in JGB yields is a reminder how quickly these reversals can play out,” according to Strategas Partners by way of Barron’s.
SEE MORE: Financial Sector ETFs Plunge on Brexit Contagion
With a steepening yield curve, or wider spread between short- and long-term Treasuries, banks could experience improved net interest margins or improved profitability as the firms borrow short and lend long. Yields on 10-year Treasury notes rose 7 basis points to 1.573% on Friday.
For more information on banks sector, visit our financial category.
PowerShares KBW Bank Portfolio
