The Financial Select Sector SPDR (NYSEArca: XLF) has been under the microscope in recent weeks as the financial services sector, the second-largest sector weight in the S&P 500, kicked off fourth-quarter earnings season.
It appears some market observers are still waiting to be impressed by the sector’s earnings reports. The financial sector strengthened after the three banks revealed strong quarterly profits and expressed optimism for the year ahead in the ir first public comments over earnings, reports Tanya Agrawal for Reuters.
According to Thomson Reuters, the combined profit of S&P 500 companies is projected to have returned 6.2% in the fourth quarter, largely due to improving results out of the financial sector.
Financials have also been among the best performers since the elections, with the KBW Bank Index up 23% since November 8, as traders speculated that higher U.S. interest rates and potential rollback of financial downturn-era regulations would bolster the sector.
“”Bank earnings improved in the quarter from higher trading activity, improved net interest margins, expense control and lower credit costs, however loan growth remains weak, which may impede material near-term earnings improvement,” said Julie Solar, Senior Director, Fitch Ratings, in a recent note.