The Financial Select Sector SPDR (NYSEArca: XLF), the largest financial sector exchange traded fund, and some other ETFs tracking the financial services sector recently endured outflows as investors grew pensive regarding the fate of the Trump Administration’s tax reform effort.
Those tensions grew last week when Republican Roy Moore was defeated in a special Senate election in Alabama, giving that state its first Democrat senator in two decades. It is expected that Senate Republicans and the White House will push to get tax reform finalized before the end of this year because Democrat Doug Jones, the winner in the Alabama race, is expected to oppose tax reform in its current state.
Capital levels at major U.S. banks are viewed as solid. Additionally, the Trump Administration’s tax reform effort is seen as a potential catalyst for the financial services sector, but it remains to be seen if that effort will come to life. Some industry observers expect the tax reform would help banks boost earnings in significant fashion.
“The Financial Select Sector SPDR Fund, ticker XLF, also had a pair of withdrawals that were among its biggest of the year over the past four sessions,” reports Bloomberg. “Some of the market reaction also may be fueled by a ‘sell the news’ attitude, which strategists including B. Riley FBR’s Benjamin Salisbury sees as possible.”
Deregulation could also help the financial sector improve their margins. President Donald Trump has shown its eagerness in cutting back the red tape and remove some of the post-financial crisis regulations that has stifled the industry.