If that cash is freed up, it could mean higher dividends and buybacks for bank stocks and ETFs.
Some good news for XLF and friends is that the financial services sector is widely regarded as perhaps the only sector in the U.S. that is attractively valued relative to the broader market and its own long-term averages. The financial sector valuations still look relatively cheap, compared to the broader market. The sector’s valuations are still about 25% below the average since the early 1990s.
“However, even with the boost in their returns to shareholders and improved profitability, bank stocks lagged the broader market by a large margin in 2017,” said State Street. “The S&P Bank Select Industry Index returned 10.7% last year, compared with a 21.8% return for the S&P 500. Despite the aforementioned tailwinds that could drive this sector, the following chart shows that bank valuations are still below historical averages relative to the broader market.”
For more information on the financial sector, visit our financial category.