Displaying items by tag: xlf

(New York)

Markets are in a very rough place right now, with benchmark indexes approaching bear market territory on Monday. Energy and travel have been the epicenter of losses, but every sector s getting hit badly. With that in mind, what is the best sector to invest in right now? The answer may be—somewhat surprisingly—financials, and XLF in particular. Whereas the S&P 500 as a whole was in the 99th percentile of valuations historically before the big fall, financials were only in the 60-70% range. Now with the big tumble in prices, financials are in the bottom 1% of their ten-year valuation range.

FINSUM: So rates and yields are super low, which obviously hurts banks’ net interest margin and has led to financial stocks getting pummeled. However, they are so cheap that this is a very good long-term entry point.

(New York)

The market and investors are in an odd juxtaposition. For the most part, the media and analysts remain pretty bearish, yet the market continues to rise. Fears of an economic slowdown are persistent. With all this in mind, what is the best way to play the market? Barron’s says you should sell puts, cashing in on investors’ fears and desire to buy puts. For instance, one could sell puts on the Financial Select SPDR (XLF), which is at a high water mark but is still quite vulnerable to a downturn because of fears over the economy and rates.

FINSUM: Granted, this is a nickel and dime strategy but it sure beats fearful money sitting in a money market account not earning much.

(New York)

If you hold bank shares, now might be a good time to pay attention. JP Morgan just put out a warning yesterday, and it is the type that seems likely to be representative of the whole industry. The bank warned of a “high teens” percentage fall in trading revenue. Most analysts have been expecting much more modest falls of around 3%.

FINSUM: Trading revenue falls tend to sweep across the big banks all at once as they are all subject to the same market conditions and underlying investor sentiment.

(New York)

If one thing is apparent about the Fed, it is that Jerome Powell and his team are much more hawkish than Yellen or Bernanke. Therefore, it looks like rates are going to continue to rise (even in the face of a market protest, such as is occurring). With that in mind, investors need to find ways to hedge their portfolios or profit from rising rates. One area to look is at bank ETFs. Banks tend to do well as interest rates rise as the lift in rates boosts their net interest margins, a key source of revenue for the sector. Accordingly, take a look at the Financial Select Sector SPDR Fund (XLF) and the SPDR S&P Regional Banking ETF (KRE), both of which had been attracting capital. Additionally, see the First Trust Nasdaq Bank ETF (FTXO), Invesco KBW Bank ETF (KBWB), and the SPDR S&P Bank ETF (KBE).

FINSUM: Banks stocks seem to be a good buy so long as we don’t get an inverted yield curve.