Stock markets gained on gaining oil prices
US markets gained on Friday, January 22, 2016, backed by a recovery in oil prices. The week saw a recovery in stock markets in the United States. Although broad markets gained during the week, the financial sector continued to see weakness. Fundamentally, the financial sector remains strong in 2016 given expectations of more interest rate hikes. But this sector is being beaten down by negative sentiment due to its strong correlation with the global economy.
Earnings of major financial heavyweights have been declared during the past two weeks. These include Goldman Sachs, Bank of America, Bank of New York Mellon, and Morgan Stanley. Earnings were better than expected, but that was due to lower expenses, not a better operating environment. Overall, all banks expressed concerns over plunging oil prices and global weakness in stock markets.
The Financial Select Sector SPDR ETF (XLF), which serves as a barometer for US financial stocks, closed at $21.28 on January 22, losing 2.9% during the week. The Vanguard Financials ETF (VFH) and the iShares US Financials ETF (IYF) generated returns of -2.5% and -2.5%, respectively, during the week. Comparatively, broad markets represented by the SPDR S&P 500 ETF (SPY) returned 1.4% during the same period. In January so far, XLF has underperformed the broad-markets-based SPY.
Stocks such as American Express (AXP), Fifth Third Bancorp (FITB), and Bank of America (BAC) fell 13%, 9.7% and 9.5% last week. Meanwhile, the gainers for the week were real estate stocks Kimco Realty (KIM), Leucadia National, and General Growth Properties. These stocks rose 5.1%, 4,4% and 3.9%, respectively, during the week.