Financial Sector ETF 'XLF' Mutes CEO Questioning on Capitol Hill

CEOs of big banks faced the music of Capitol Hill questioning on Wednesday, but the cacophony did little to affect the Financial Select Sector SPDR Fund (NYSEArca: XLF). XLF was down just 0.19 percent as of 12:30 p.m. ET.

Furthermore, XLF is up 8.48 percent year-to-date. All the government finger-wagging is a precursor to first-quarter earnings scheduled to kick off on Friday with the big banks reporting–some of which are currently being grilled by the House Financial Services committee.

In the Capitol Hill hot seat:

  • Jamie Dimon of JPMorgan Chase
  • Bank of America’s Brian Moynihan
  • David Solomon of Goldman Sachs
  • Michael Corbat of Citigroup
  • Morgan Stanley’s James Gorman
  • State Street’s Ronald O’Hanley
  • Charles Scharf of Bank of New York Mellon

XLF is still trading just below its 200-day moving average, but did cross the line a couple of times thus far in 2019. As far as whether it presents a value play or a warning to “stay away” could depend on how well the banks do when they reveal their first-quarter earnings.

'XLF' Financial Sector ETF Blinks as Bank CEOs Face Capitol Hill Questioning 1

Wall Street analysts are already expecting a less-than-stellar earnings season for the first quarter.  Investors are looking at a 4.3 percent year-over-year reduction in earnings growth, according to FactSet estimates.

Should those estimates hold up, it would represent the first profit reduction for the S&P 500 since the second quarter of 2016. With analysts expecting a decline in earnings, the focus falls on corporate guidance for the rest of the year, which could help temper any investor fears.

Related: Can a Dovish Fed Keep the Stock Market Rally Afloat?

Meanwhile, the CEOs are facing a battery of questions regarding executive compensation, income inequality and the overall stability of the nation’s banking system. It all ties back to the financial crisis over a decade ago–a simple matter of “checking in.”

“Ten years ago, the CEOs appeared before this very committee to discuss the financial crisis and the massive bailout taxpayers provided,” said House Financial Services committee and Democrat Maxine Waters. “A decade later, what have they learned? Are they helping their customers and working to benefit the communities they serve? Or are the practices of these banks still causing harm?”

However, not all of Capitol Hill was ready to rain down fire and brimstone on the banks.

“Why are we here?” ranking member Patrick McHenry, R-N.C asked. “I fear our colleagues on the other side of the aisle are here to attack our economic system, attack the nature of our market. I fear my friends want to dictate social and environmental policy through government mandates on banks. That’s not the right approach.”

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