An avalanche of third-quarter earnings reports from the lagging financial services sector are expected starting this week. With some analysts and sector observers not enthusiastic about banks’ near-term prospects, inverse leveraged exchange traded funds could step into the earnings season spotlight.
That includes the Direxion Daily Financial Bear 3X Shares (NYSEArca: FAZ). FAZ attempts to deliver three times the daily inverse performance of the Russell 1000 Financial Services Index.
Another idea to consider is the Direxion Daily Regional Bnks Bear 3X ETF (NYSEArca: WDRW). WDRW looks to deliver triple the daily inverse performance of the S&P Regional Banks Select Industry Index.
“Financials analyst Dick Bove is telling investors to sell their bank stocks,” reports CNBC. “Bove, chief strategist for Rafferty Holdings’ Hilton Capital Management, believes rising interest rates will ultimately crush bank profits — a scenario Wall Street needs to take more seriously.”
Near-Term View for ‘FAZ’ and ‘WDRW’
FAZ and WDRW will be immediately tested by third-quarter earnings. Over the next two weeks, nearly 41% of the Russell 1000 Financial Services Index delivers earnings. During that same period, more than 55% of the S&P Regional Banks Select Industry Index reports quarterly results.
Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector. Regional banks are among the stocks most positively correlated to rising interest rates because higher rates improve net interest margins.
“According to Bove, the Federal Reserve’s current rate hike policy will become detrimental to financials — particularly traditional banks,” according to CNBC.
