Financial sector closes in the red
Last week, with minutes from the Federal Reserve meeting released, US stock markets closed in the red. The minutes suggest that the Fed has concerns about the global economy, which could imply that there won’t be a rate hike in April. This led to a rally in bond markets and global interest rates fell. That week, the SPDR S&P 500 ETF (SPY) lost 1.2%.
Lower long-term interest rates reduce the earnings power of banks and the Financial Select Sector SPDR ETF (XLF), which serves as a barometer for US financial stocks. So far, it has fallen 7.5% in 2016.
The XLF ETF, which invests primarily in banks, lost 2.9% last week as analysts cut down earnings estimates and investors were more cautious as earnings releases approached. The stocks that lost the most were Genworth Financial (GNW), Legg Mason (LM), and CME Group. Meanwhile, HCP, Plum Creek Timber, and Navient gained the most. These stocks gained 6.3%, 3.4%, and 1.5%, respectively, last week.
XLF closed at $22.05 on April 8, having fallen by 2.9% during the week. Comparatively, the Vanguard Financials ETF (VFH) and the iShares US Financials ETF (IYF) generated negative returns of 2.2% and 2.6%, respectively.