Are Bulls Driving the Financial Sector to a New High?
The financial sector had a strong performance and contributed to the S&P 500 Index’s rally in November 2017. The Financial Select Sector SPDR ETF (XLF), which tracks the performance of the financial sector, rose 3.6% in November 2017. Major financial stocks, including JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C), returned 3.8%, 3.3%, and 3.1%, respectively, in November 2017.
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Factors driving the sector
Major financial stocks had strong performances in 3Q17, with their higher profit margins driving investor sentiment. An improving economic situation in the United States (SPX-INDEX) is helping businesses improve their demand outlook.
The market is also expecting the Fed to raise the key interest rate in December 2017. It will be the third rate hike in 2017. The gradual rate hike is good for the financial sector since it increases profit margins. An aggressive rate hike, on the other hand, could hamper the demand side of the economy (COMP-INDEX).
The expected tax reform bill could greatly improve the net earnings and profit margins of these financial stocks. With this expectation, the rally in the financial sector is continuing, adding value to the overall performance of the S&P 500 Index.
In the next part of this series, we’ll analyze the performance of the technology sector.