Financial Sector ETFs Heading Toward a Big Week | ETF Trends

The earnings season for the new year will be getting into high gear next week as exchange traded fund investors watch out for big Wall Street banks’ latest quarterly reports.

Big big name banks like Citigroup (C), JPMorgan Chase (JPM), PNC (PNC), and Wells Fargo (WFC) will be reporting their latest quarterly results next week, with J.P. Morgan, Citigroup and Wells Fargo rounding out the week on Friday, January 15.

This will be a busy week for financial ETFs like the popular Financial Select Sector SPDR (NYSEArca: XLF), which includes a 11.9% position in JPM, 4.0% in C, and 4.0% in WFC.

XLF 1 Year Performance

Overall, S&P 500 company earnings are projected to rise about 23% in 2021, but that is when compared with the coronavirus pandemic-stricken 2020, leaving investors with the task of figuring out how much of that is sustainable, Reuters reports.

Mohannad Aama, managing director at Beam Capital Management, warned that traders will likely be more discerning than they were last year.

“With less focus on politics, there is greater bandwidth for focusing on other issues such as COVID and economic fundamentals,” James Knightley, chief international economist at ING, told Reuters.

Many are anticipating a stronger year for financial stocks as the economy improves. Wall Street is expecting the Democrat-controlled Congress to be a good outcome for bank stocks. While a Democratic party controlled government is usually not a good sign due to potentially tougher regulations and higher tax rates, many are focusing on the greater likelihood of Congress passing through a big fiscal spending measure to further bolster a flagging economy that remains fettered by the ongoing resurgence in coronavirus cases.

Additionally, the debt markets are also seeing the yield curve steepen, so banks can enjoy a larger gap between short-term deposit rates and long-term loan rates.

“The two key words are stimulus and steepener, which in turn can help the “3 R’s” rates, reflation, and recovery,” Mike Mayo, senior analyst at Wells Fargo Securities, said in a note, according to Barron’s, adding that the additional stimulus will help bank customers, which will in turn help banks by lowering default rates.

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