Financials Overview: Week of July 24–28, 2017
Banks must face class-action lawsuit
A U.S. District Judge in Manhattan allowed investors to pursue their nationwide antitrust lawsuit against 12 banks including Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C). The lawsuit accuses banks of conspiring to rig the interest rate swaps market. The lawsuit claims that from 2013 to 2016, banks boycotted three upstart electronic platforms for swaps trading to unduly benefit from it. Investors seeking damages said banks consciously wanted to control their 70% market share and boost their profit by making trading more expensive.
Wells Fargo feels the heat
Wells Fargo (WFC) revealed that it charged customers for unneeded auto insurance between 2012 and 2017. In some cases, the bank repossessed customers’ cars. After customers complained, the bank’s internal investigation found that ~570,000 borrowers might have been wrongly charged. Wells Fargo will give the customers refunds and compensation worth $80 million.
Financials posted moderate gains
Banking stocks posted moderate gains this week as the Fed left interest rates unchanged. The S&P Financial Sector Index rose 0.5%, while the broader S&P 500 Index (SPX-INDEX) remained flat. Citibank (C) rose 2.2%, while Goldman Sachs (GS) and Bank of America (BAC) rose 1.6% and 0.97%, respectively. Wells Fargo fell the most (1.6%) after the new scandal hit the bank.
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Most of the financial ETFs posted moderate gains or losses. The Financial Select Sector SPDR ETF (XLF) rose 0.44%, while the SPDR S&P Regional Bank ETF (KRE) and the SPDR S&P Bank ETF (KBE) fell 0.26% and 0.25%, respectively. The S&P Insurance Select Industry Index (SPSIINS) rose 0.60% last week.
President Trump threatens to end insurance payments
President Trump threatened to end government payments to health insurance companies if Congress doesn’t pass a new healthcare bill. The warning came after Republicans failed to repeal and replace Obamacare. Many insurance companies plan to raise rates 20% by August 16, the deadline for premium prices, in case they don’t get assurances from the government.
SPY boosted overall ETF inflows
US-listed ETFs witnessed net inflows worth $6.54 billion during the week, which takes year-to-date inflows to $272.5 billion. As the market continued to rise, US equity had some of the largest inflows in recent weeks with $4 billion. Higher inflows in international equity continued with the addition of $2.04 billion. US fixed income, which was a favorite among investors in the past few weeks, took a backseat with inflows of only $994 million. On the other hand, commodities had outflows of $902 million.
The SPDR S&P 500 ETF (SPY) witnessed huge inflows after experiencing consistent outflows in the past few weeks. SPY had inflows of $5.8 billion during the week, while other ETFs had much smaller inflows. The iShares Core MSCI EAFE ETF (IEFA) had inflows of $734 million followed by the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) with $568 million and the iShares Core S&P 500 ETF (IVV) with $398 million.
US equity had outflows worth $1.11 billion in the week. The outflows were led by the PowerShares QQQ Trust (QQQ), the iShares Russell 2000 ETF (IWM), and the iShares 20+ Year Treasury Bond ETF (TLT) with redemptions of $2.58 billion, $1.65 billion, and $1.04 billion, respectively.
US Fed kept the interest rate unchanged
The Fed kept interest rates unchanged amid concerns about inflation staying lower for a longer period of time. The Fed plans to start trimming its massive bond holdings in due course—a sign of renewed confidence in the US economy.
The first week of August will see the release of the Eurozone’s second quarter GDP figures. Australia and India will see an announcement regarding the interest rate decision, which will have wider ramifications for their economies. The US will report the ISM purchasing managers’ index, while Japan will announce its industrial production data.