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Why Did Diversified Financial Services Stocks Outperform?

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Financial services stocks rose last week

In the United States, the broad-based SPDR S&P 500 ETF (SPY) rose 1.6% last week. Since the beginning of the year, global stock markets have been on a roller coaster ride, worried about slowing economic growth and plunging oil prices. The financial sector is historically a leading indicator of Market declines and has been affected the worst by this global sell-off.

The Financial Select Sector SPDR ETF (XLF), the largest traded financial ETF, closed at $21.32 on February 26, rising 1.6% last week. Comparatively, the Vanguard Financials ETF (VFH) and the iShares Financials ETF (IYF) generated returns of 1.7% and 1.7%, respectively, during the same period.

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While all subgroups within the financial sector generated positive returns last week, diversified financial services rose the most. Diversified financial services stocks included within the Financial Select Sector SPDR ETF (XLF) portfolio rose 8%. These stocks constitute ~10.2% of XLF. Investment banks and brokerage stocks led the gains within the subgroup and returned 6% last week.

Twelve of the 15 diversified financial services stocks within XLF posted positive returns during the week. They were led by E*Trade Financial (ETFC), Navient (NAVI), and Franklin Resources (BEN). These stocks rose 7.8%, 6.8%, and 6.1%, respectively. Intercontinental Exchange, CME Group, and BlackRock (BLK) underperformed among the banks in XLF. These stocks returned -3.3%, -0.2%, and -0.1%, respectively, during the same period.

In the next part of this series, we’ll see what analysts are recommending for diversified financial services stock.

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