Challenges Remain for Financial Services ETFs

Financial services exchange traded funds surged last Friday after President Donald Trump revealed plans to scale back 2010 Dodd-Frank legislation, which increased regulations on banks and financial services companies following the global financial crisis.

For example,the Financial Select Sector SPDR (NYSEArca: XLF), the largest financial services ETF, jumped 2%. Other widely followed bank ETFs, including the SPDR S&P Regional Banking ETF (NYSEArca: KRE) and the SPDR S&P Bank ETF (NYSEArca: KBE), ended the week in fine fashion as well.

In addition to corporate tax reductions, Trump is looking to ease the regulatory burdens faced by many of the big name companies in ETFs like XLF.

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.

However, Trump’s deregulation efforts for the financial services industry have some doubters.

“Of course, a big catalyst will be the Federal Reserve’s next moves. As widely anticipated, policymakers on Wednesday announced they would leave interest rates unchanged following a quarter-point hike in December, the second increase in a decade,” reports CNBC.