Investors in financial services stocks and exchange traded funds, such as the Financial Select Sector SPDR (NYSEArca: XLF), have been patiently waiting on a rate hike from the Federal Reserve.
That has not happened since last December and that was merely the first time in over a decade the Fed boosted borrowing costs.
With Fed funds futures indicating there is a 94% chance the Fed raises interest rates by 25 basis points when it meets next week, rate-sensitive bank stocks and ETFs are in focus after soaring for the past month following the surprising presidential election results.
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.
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.