What Led to the Rise of Financial ETFs Last Week?

Markets turned positive last week led by financials

Market sentiment turned bullish in the week ending March 4 after oil prices rebounded. The SPDR S&P 500 ETF (SPY) rose 2.7% during the week. The Financial Select Sector SPDR Fund (XLF), which invests primarily in banks, rose 4.5% last week led by gains in Genworth Financial (GNW), Legg Mason (LM), and Affiliated Managers Group (AMG). These stocks rose 32.1%, 13.4%, and 11.9%, respectively, during the trailing-five-day period ending on Friday, March 4.

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Since the beginning of 2016, the financial sector has witnessed a heavy sell-off. However, bearish sentiment seems to have eased in the last two weeks as oil prices have recovered and economic data have beaten expectations. Payroll data and GDP growth numbers suggest that the US economy is stronger than expected, and worries of a recession seem to have dissipated.

Further, Wall Street banks are expecting the Federal Reserve to raise interest rates twice this year. Lower long-term interest rates reduce the earnings of banks. The Financial Select Sector SPDR Fund (XLF), which serves as a barometer for US financial stocks, has plunged 10.5% so far in 2016.

XLF closed at $22.28 on March 4, rising 4.5% on a trailing-five-day basis. Among other financial ETFs, the Vanguard Financials ETF (VFH) and the iShares U.S. Financials ETF (IYF) rose 4.4% and 4.3%, respectively, during the same period.