A Huge Week Is Looming for Financial Sector ETFs

Financial sector exchange traded funds are in for a big week as Wall Street banks kick off the first quarter earnings season.

On Wednesday, JPMorgan Chase (NYSE: JPM), Wells Fargo (NYSE: WFC), and Goldman Sachs (NYSE: GS) will report their first quarter results.

On Thursday, Bank of America (NYSE: BAC), Citigroup (NYSE: C), U.S. Bancorp (NYSE: USB), Charles Schwab (NYSE: SCHW), Truist Financial Corp (NYSE: TFC), and BlackRock (NYSE: BLK) are next up to bat.

Lastly, Citizens Financial (NYSE: CFG), Bank of New York Mellon (NYSE: BK), PNC (NYSE: PNC), State Street (NYSE: STT), and Morgan Stanley (NYSE: MS) will report on Friday.

RBC Capital Markets’ Gerard Cassidy anticipates financials to exceed Wall Street expectations when they start reporting this week, CNBC reports.

“The big beats are likely to come from the loan loss reserve releasing numbers,” Cassidy, RBC Capital Markets’ head of U.S. bank equity strategy, told CNBC. “Last year because of the pandemic, the banking industry set aside billions of dollars in anticipated credit losses, and the reserves for these losses weren’t used.”

Financials were previously the third worst performing S&P 500 sector of 2020 after energy and real estate. However, financials have made a strong rebound in 2021, gaining momentum on the broader economic recovery and a shift toward value. Looking ahead, Cassidy argued that the banking sector will be among the best performers this year due to the unprecedented economic recovery.

“That was not factored in last year when the banks set aside this money to cover these losses,” Cassidy added. “So, we expect in the first quarter that’s going to be the big driver of the earnings beat, partially offset though with slower growth in the net interest income and maybe some net interest margin pressure as well.”

Investors can track the banking and financial sectors through targeted ETF plays. For example, the SPDR S&P Bank ETF (NYSEArca: KBE) tries to reflect the performance of the S&P Banks Select Industry Index, which provides exposure to the bank segment of the S&P TMI, including asset management & custody banks, diversified banks, regional banks, other diversified financial services, and thrifts & mortgage finance sub-industries.

Additionally, the broader Financial Select Sector SPDR (NYSEArca: XLF) follows the Financial Select Sector Index, which provides an effective representation of the financial sector of the S&P 500 Index. The ETF provides precise exposure to companies in the diversified financial services; insurance; banks; capital markets; mortgage real estate investment trusts (“REITs”); consumer finance; and thrifts and mortgage finance industries.

For more information on the financials sector, visit our financial category.