Financial services stocks and exchange traded funds rose last week after the Federal Reserve said it will gradually begin unwinding its balance sheet and fixed income traders priced in increasing odds of a December interest rate hike.
Those headlines helped the SPDR S&P Bank ETF (NYSEArca: KBE), which focuses exclusively on bank stocks, notch a weekly gain of nearly 4%. That performance also helped KBE extended an important Fed week streak.
“And while its chart still looks promising — KBE is now on pace for a fourth straight close above its 80-day moving average — it looks like one options trader yesterday bet on a quick retreat from the fund,” reports Schaeffer’s Investment Research.
Some strategists also argue that the financial sector may be a good area to look at this time around, given the potential for growth in a rising rate environment, along with potential tax and regulatory changes under the Donald Trump administration.
The Trump administration’s expansionary policies would be especially beneficial for banks since the segment is sensitive to the overall economy. Moreover, the expansionary policies have fueled bets of increased Federal Reserve interest rate hikes to rein in a potentially overheating economy and rising inflation, which further supports lending revenue and their bottom line among bankers and insurers.