ETF Trends
ETF Trends

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.

Heading into this year, many fixed income traders were expecting the Fed to hike rates multiple teams, move that many market participants believe would be beneficial to banks.

Bank ETFs are benefiting from speculation that the Federal Reserve will boost interest rates multiple times this year. 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.

“Erin Gibbs, equity chief investment officer at S&P Global, notes that the group’s earnings growth expectations are in line with those of the overall S&P 500, and that banks’ valuations have remained in a “range” for a few months,” reports CNBC.

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.

For more information on the financial sector, visit our financial category.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.