Bank ETFs Recovering, but There's Still Work to Do

The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial sector-related exchange traded fund, rose about 1.6% in July, a solid performance when considering some analysts were not enthusiastic about second-quarter earnings reports from big banks. Still, the financial services sector appears to be on the mend, but it may take a while for investors to appreciate the sector’s potential.

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. After failing on the healthcare front, Congressional Republicans are likely to push forward with tax reform, looking to make that the centerpiece of their 2017 legislative accomplishments.

“Second-quarter results for U.S. banks underscored existing trends with earnings and loan growth broadly positive but still muted,” said Fitch Ratings. “Benign credit costs, slightly improved net interest margins, lower expenses and modest deposit betas were all positive factors for earnings in the quarter, although overall return metrics remained low.”

Related: Financial ETFs Can Find a Second-Half Groove