Bulls Back The Banks

The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial sector exchange traded fund, and other financial services ETFs are seeing increased interest ahead of this month’s Federal Reserve meeting.

Rising interest rates are seen helping U.S. banks and the related ETFs. The Federal Reserve has boosted borrowing costs twice this year and bond market observers widely expect a third rate hike when the Fed meets in December. The financial services sector could be working its way into a period of long-term out-performance. The recent rally in the sector could still be in the early innings, according to some market observers.

On Monday, options activity in XLF was brisk.

“XLF calls are changing hands at six times the average intraday pace, with nearly 270,000 exchanged so far — that’s compared to just 36,000 puts. Call volume is now pacing for an annual high on the fund, and at current levels, it would mark XLF’s lowest daily put/call ratio — 0.14 — in at least a year,” according Schaeffer’s Investment Research.

Additionally, the Trump Administration’s tax reform effort is seen as a potential catalyst for the financial services sector, but it remains to be seen if that effort will come to life. Deregulation could also help the financial sector improve their margins. President Donald Trump has shown its eagerness in cutting back the red tape and remove some of the post-financial crisis regulations that has stifled the industry.