Bank Sector ETFs Climb on Hopes of a Recovering Economy | ETF Trends

Banks and sector-related ETFs were leading the markets Wednesday as investors looked for cheap segments of the market and rotated toward more economically sensitive areas.

Among the best performing non-leveraged ETFs of Wednesday, the First Trust NASDAQ ABA Community Bank Index Fund (NasdaqGM: QABA) increased 6.3%, Invesco KBW Bank ETF (NASDAQ: KBWB) advanced 5.2%, SPDR S&P Bank ETF (NYSEArca: KBE) increased 5.5%, Invesco KBW Regional Bank Portfolio (NYSEArca: KBWR) gained 6.3%, iShares U.S. Regional Banks ETF (NYSEArca: IAT) climbed 5.4% and SPDR S&P Regional Banking ETF (NYSEArca: KRE) rallied 5.6%. Meanwhile, the broader Financial Select Sector SPDR (NYSEArca: XLF) was 3.4% higher.

The financial sector has been among this year’s worst performers, with bank stocks underperforming the S&P 500 by close to 30% year-to-date, as many observers grew concerned over the austerity measures put in place for loan-loss provisions to hedge against a prolonged recession, along with constricted profitability in the short-term due to a record low interest-rate environment.

However, the near-term concerns slightly abated on improving consumer sentiment with the Conference Board’s consumer confidence index up to 86.6 in May from 85.7 in April, compared to expectations of a lower 82.8, CNBC reported.

“Following two months of rapid decline, the free-fall in Confidence stopped in May,” Lynn Franco, senior director of economic indicators at The Conference Board, said in a statement. “Short-term expectations moderately increased as the gradual re-opening of the economy helped improve consumers’ spirits.”

Banks depend on consumers’ ability to go out and spend money, along with paying off bills. The stronger consumer confidence may also reflect Americans are in better shape than many previously believed, and a rebound may be closer in sight. Consequently, as states begin to reopen economies and consumers step outside again, the loan losses for banks may be lower feared.

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