Financial Stocks Slide on Worries of Economic Slowdown

Stocks plunge to their lowest levels since 2009

Last week, stocks in the financial sector plunged to their lowest levels since the recession on worries of a slowdown in economic growth around the globe.

Adoption of negative interest rate policies and loose monetary policies coupled with expectations of Europe’s easing of monetary policy have heightened fears of a slowdown in global economic growth.

Financial Stocks Slide on Worries of Economic Slowdown

Weakness in the financial sector is being witnessed across the globe. Fourth-quarter bank earnings have been dismal. A low margin outlook and falling commodity prices have led to further worries of credit losses for the sector. Lower long-term interest rates reduce the earnings power of banks.

The Financial Select Sector SPDR ETF (XLF), which serves as a barometer for US financial stocks, has plunged 12% in 2016 so far. In comparison, the iShares MSCI Europe Financials ETF (EUFN) has lost 10%, while the Wisdom Tree Japan Hedged Fund Financial ETF (DXJF) has plunged 23%.

XLF closed at $20.95 on February 5, losing 3.6% during the week. The Vanguard Financials ETF (VFH) and the iShares Financials ETF (IYF) generated returns of -2.9% and -3.5%, respectively, during the week. Comparatively, broad markets represented by the S&P 500 SPDR ETF (SPY) returned -2.9% during the same period.

Stocks such as Genworth Financial (GNW), Metlife (MET), and CBRE Group lost 21.6%, 13.1%, and 11.1%, respectively, last week. Meanwhile, the gainers for the week were Aon (AON), Allstate (ALL), and Cincinnati Financial (CINF). These stocks rose 5.7%, 4.6%, and 4.6%, respectively, during the week.