Usual ETF Suspects Benefit From Rising Rates Speculation

Financial services exchange traded funds, including the Financial Select Sector SPDR (NYSEArca: XLF) and the SPDR S&P Bank ETF (NYSEArca: KBE), remain beholden to the whims of the Federal Reserve.

Over the next couple of months that might not be a bad thing, particularly as markets price in increasing odds that the Fed will finally raise interest rates in December.

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. Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector.

SEE MORE: Bullish Signs for Bank ETFs

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.

Some market observers see the second-largest sector allocation in the S&P 500 as being a valid bullish play for the last three months of the year.