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. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.
Related: Financial Sector ETFs Maintain Momentum
President-elect Donald Trump has said he would “dismantle” financial reform, or the Dodd-Frank financial reforms, that have caused big banks to take on increased capital requirements to obviate another depression event associated with high-risk debt. That rhetoric is seen as a boon for bank stocks and ETFs.
Still, investors should focus on earnings when it comes to XLF and friends.
“Our expectation is that earnings estimate revisions will continue to drive individual stock performance during the rest of the year, and that the bias of estimates will be upward. However, give the run in the stocks, we expect the coming weeks to be a time of sorting out appropriate relative values rather than a continued upward movement in share prices. As estimates adjust to a new environment so will share prices”>,” according to the KBW note posted by Barron’s.
For more information on the banking sector, visit our financial category.
Financial Select Sector SPDR (NYSEArca: XLF
