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Why Hedge Funds Have a Dull Outlook on the Market in 2H17

PART:
1 2 3 4 5 6 7 8 9 10
Part 5
Why Hedge Funds Have a Dull Outlook on the Market in 2H17 PART 5 OF 10

How Did the Financial Sector Perform in 2H17?

Financial sector

The financial sector showed a strong performance in the first half of 2017. The Financial Select Sector SPDR Fund (XLF), which tracks the performance of the financial sector, rose nearly 5% in 1H17. J.P. Morgan (JPM), Bank of America (BAC), and Citigroup (C) returned nearly 4.8%, 7.6%, and 10.4%, respectively, between January 3, 2017, and June 30, 2017.

How Did the Financial Sector Perform in 2H17?

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Various factors drove the performance of the financial sector (VFH) in the first half of 2017. The Fed’s gradual rate hike process, the expectation for deregulation, and stronger earnings growth were important factors.

Rising interest rates are boosting financial stocks. The Fed has brought the key interest rate to the range of 1%–1.25%. However, some fund managers such as Bill Gross and Richard Bernstein believe that too much tightening could be a major problem for the economy (IWM) and markets (SPY).

Recently, major financial stocks reported their 2Q17 earnings. Most of the financial companies beat their earnings estimates, which is improving investors’ confidence in financial stocks. On the other side, President Donald Trump’s proposed abolition of the Dodd-Frank Wall Street Reform and Consumer Protection Act also drove the movement of financial stocks. If this reform occurs, then it could increase the profitability of financial firms.

If financial stocks post better earnings growth in 2H17, the Fed continues its gradual rate hike process, or any reform takes place in the financial sector, then we could see more upside in this sector.

In the next part of this series, we’ll analyze the performance of the technology sector in the first half of 2017.

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