Hottest Financials Streak Since 2010 Ends Yearlong ETF Drought
(Bloomberg) -- With financial firms on track for their longest winning streak since 2010, exchange-traded fund investors are taking note.
ETFs that track banks and insurers are poised for their first month of inflows in more than a year, Bloomberg Intelligence data show. The end to the dry spell comes as the S&P 500 Financials Sector index heads toward its sixth straight weekly advance, a feat not seen in nine years, although the gains were tempered in early trading Tuesday.
Reduced fears of a recession have helped lift bank stocks, as have better-than-forecast earnings. First-quarter results were positive, with “credit remaining benign, costs well controlled and core loan growth steady,” Atlantic’s John Heagerty wrote in a note.
More recently, expectations for yield curve steepening have also provided a boon amid speculation Federal Reserve policy makers will maintain a dovish tone at this week’s meeting. Goldman Sachs Chief Executive Officer David Solomon also called credit markets “pretty constructive” on Monday.
Two of the largest funds in the space, the $26 billion Financial Select Sector SPDR Fund and the $2 billion SPDR S&P Bank ETF, are set to record inflows in April, marking the first month this year they’ve added assets. Investors poured a combined $2 billion into the funds this month, the most since November 2016 -- when Donald Trump won the presidential election.
Before JPMorgan Chase & Co. kicked off the first-quarter earnings season April 12, financials ranked among the worst groups in the S&P 500, underperforming the broader market. Now, financials’ gains are in line with the broader benchmark year-to-date.
Wells Fargo’s head of equity strategy Christopher Harvey just raised his year-end price target for the S&P 500, in part driven by the recent strength in financials. For John Kolovos of Macro Risk Advisors, the sector’s newfound durability is coming at the perfect time.
“As we muddle through earnings the market is clearly rewarding the financial sector,” Kolovos, the firm’s chief technical strategist, wrote in a note to clients Tuesday. “This should buy the tape some cover as tech takes a much-needed breather.”
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