The good news for financials is that the sector, the second-worst performer this year behind only energy, 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.
Some strategists also argue that the financial sector may be a good area to look at this time around, given the potential for growth in a rising rate environment, along with potential tax and regulatory changes under the Donald Trump administration.
“The proposed reform to Dodd-Frank would eliminate the fiduciary rule and rollback the Volcker rule. Also in the bill is the potential regulatory relief for institutions meeting certain leverage guidelines. Such changes would not only help lessen the cost of complying with these regulations but also potentially open up what financial institutions can do as far as lending and investing is concerned. Much of this was put in place following the financial crisis in order to help ensure another near meltdown doesn’t occur again,” according to ETF Daily News.
Some bond traders expect the Fed to raise rates again, perhaps as soon as this month, which could give XLF and rival ETFs a near-term boost.
For more information on the financial sector, visit our financial category.