Financial Select Sector SPDR® ETF

Today, most measures of credit conditions are positive, with tight spreads across all of fixed income. Even high yield spreads have come in after a short scare last month.

The great American deleveraging has largely been limited to the financial sector (XLF) (IYF). Non-financial debt is still much higher than historical averages.

After September’s strong jobs numbers, a Fed rate hike could be on the horizon early next year. Russ explains two equity market implications.

Historically, TD Ameritrade traded at a discount to its peers because of average operating margins. The sector’s valuations fell in the recent past.

The launch of innovative ideas at the right time can help Blackstone attract a good amount of new capital through its dedicated network.

Morgan Stanley’s (MS) Investment Management segment reported a 7% increase, bringing total revenues to $751 billion compared to $705 billion in 2Q14.

Since the financial crisis of 2009, there has been intense pressure on US banks to raise capital levels to meet minimum requirements.

To make the most of growing consumer spending, major banks focused on their consumer banking business. They’re lending out more consumer loans.

Carlyle Group (CG) is expected to see its distributable income rise in the current quarter on monetizations through the IPO process, private sales, and placements.

As of October 2017, Berkshire Hathaway (BRK.B) stock has returned 3.2% in the past month and 31.4% over the past four quarters.

Morgan Stanley charges fixed fees and performance fees for asset management services, products and services, and administration of accounts.

I would pay particular attention to the Shiller P/E Ratio, which is a variation on the Cyclically Adjusted P/E or CAPE. This indicator is worth watching as it has historically correlated with long-term stock market returns.

The CBOE Volatility Index suddenly rose 6.0% on November 9, 2016, after it was clear that Trump had unexpectedly clinched the election.

Wall Street analysts expect Goldman Sachs to post return on equity (or ROE) of 11.5% in 3Q15. In 3Q14, ROE for Goldman Sachs was 11.8%.

Major banking stocks rose after the Fed approved huge payout plans. Wells Fargo (WFC) rose 2.7% and Citigroup (C) rose 2.8%.

Goldman Sachs has been cutting costs in recent quarters. In 2016, 2,600 people may have lost their jobs at GS—the highest number since the financial crisis.

Utility sector valuation appears stretched. 2014 was a great year for utilities, which gained 26.62% ex-dividends and were the best-performing sector.

This week, five of the top six commercial and investment banks will report their quarterly earnings.

The ADP National Employment Report for September 2017 showed some weaker improvement in private sector employment to 135,000 in September compared to the market’s expectation of 125,000.

Carlyle Group (CG) reported distributable earnings of $129 million in fiscal 1Q16, 13% lower than in 1Q15.

JPMorgan’s revenues from fixed income markets declined 10% year-over-year in the second quarter of 2015. The drop excludes the impacts of one-off items.

Two key elements gripping the US banking sector and Wells Fargo include the near-zero interest rate and global uncertainty, which have dampened earnings.

Goldman Sachs derives 16% of its revenues from the investing and lending business. So far, 2016 has been a rough year for the financial sector.

The Federal Deposit Insurance Corporation’s quarterly report on the health of the US banking industry said that 4Q15 bank earnings rose 11.9% year-over-year.

Is KKR a good pick for growth options? KKR is expected to improve its realizations in 2015 and 2016 after an expected valuation increase of energy holdings.

Morgan Stanley (MS) reported net income of $1.18 billion, or $1.18 per diluted share, the bank’s most profitable first quarter since the 2007 financial crisis.

Major central banks are now diverging in their monetary policies, a dynamic we saw vividly on display last week with the Federal Reserve ending its quantitative easing (or QE) program, while Japan expanded its version of QE.

Exchange-traded fund investors added almost $552.6 million on average to the Financial Select Sector SPDR ETF (XLF) in the last quarter. During the week ending September 25, the ETF witnessed outflows of $318.3 million.

Citigroup’s CEO, Michael Corbat, continued his efforts to try to slim down the company’s operations and clean up its balance sheet in the second quarter.

Bank of America (BAC) is currently trading at $25.26. Its 52-week high is $25.80 and 52-week low is $12.05.

With classic safe havens providing little protection, turn to financials and healthcare sectors for opportunities. Healthcare stocks usually hold up well in the run-up to a rate hike.

Wells Fargo has consistently performed well in stress tests. This performance has let the company increase its dividends annually.

Equities and broader markets rebounded in 2H16. The global economic outlook has now become relatively more stable for 2017.

Operating margins In 3Q17, Bank of America’s (BAC) non-interest expenses fell sequentially and YoY (year-over-year), reflecting strong operating efficiency. This fall was partially offset by continued investments in technology. The bank’s expenses fell to $13.1 billion in 3Q17, compared with $13.5 billion in 3Q16 and $13.7 billion in 2Q17. Commercial banks (XLF) are focusing on reducing operating spending, targeting huge investments in technology […]

While valuation is important, investors should also pay attention to sentiment. The goal is to gauge how – to steal a phrase – “irrationally exuberant” investors have become.

Monetary policy normalization refers to two aspects: the federal funds rate and the Federal Reserve’s balance sheet.

Citigroup’s 2Q15 efficiency ratio was 56% and was 66% in 3Q14. The bank has focused on efficiency through cost controls and exiting low-return segments that led to a lower efficiency ratio.

In spite of a rather weak performance, Wells Fargo (WFC) commands the highest premium due to its strong franchise, mortgage concentration, and high net interest margins.

This series is our attempt to educate our readers about leveraged and inverse ETFs, their structure, and their suitability for retail investors.

The bank has always focused on its bread and butter revenue-earning stream: loans. Over the years, Wells Fargo slowly realized its goal of achieving a strong market share in lending.

In June, the Federal Reserve approved Wells Fargo’s (WFC) capital plans after it found that the bank could keep lending in a severe economic downturn.

In a Bloomberg survey of 37 analysts, 19 analysts (51%) have assigned a “buy” rating to Wells Fargo (WFC) while 13 (35%) have rated it as “hold.” The stock currently has five “sell” ratings.

The Utilities Select Sector SPDR ETF (XLU), which tracks the performance of the utility sector, rose 2.7% in November 2017.

On a next 12-month basis, State Street Corporation (STT) has a PE (price-to-earnings) ratio of 13.9x. Its competitors’ average is 21.22x.

Currently, Citigroup trades at a discount of 40% to its book value. It trades cheaper than peers such as JPMorgan Chase, Wells Fargo, and Goldman Sachs.

The Fed is targeting one last rate hike in December 2017 to bring the federal funds rate from 1.25% to 1.50%.

In March, the Fed issued a conditional non-objection to Bank of America’s capital plan. It must resubmit its plan and address certain weaknesses.

President Trump is expected to submit a tax reform and infrastructure spending package to Congress this year—all aimed at increasing business investments.

TD Ameritrade Holding (AMTD) saw an increase in its total operating expenses for fiscal 3Q17 compared to fiscal 3Q16.

Trump’s domestic growth-friendly policies Returns have been surging for the financial sector (XLF) (VFH) as the market expects to benefit from the Trump administration’s projected policies. Markets are highly confident with the expectation of more rate hikes, for example, and of widespread deregulation. Banks’ earnings have thus been getting a huge boost, and the market has been […]

Bank of America (BAC) has put in place a strong expense control mechanism that has resulted in lower growth in operating expenses compared to revenues.

On April 13, JPMorgan Chase reported 1Q16 earnings of $1.35 per share. It beat consensus estimates of $1.28. Its shares rallied 4.2% after the earnings beat.

American Express (AXP) has been using its strong balance sheet position to consistently declare dividends to its shareholders.

Prospect Capital (PSEC) is targeting spin-offs in order to raise capital to be redeployed in asset classes yielding higher returns.

Of the 19 analysts covering TD Ameritrade (AMTD) in April 2018, seven have recommended “strong buy,” five have recommended “buy,” six have recommended “hold,” and one has recommended “strong sell.”

The Financial Select Sector SPDR ETF (XLF) attracts the most attention among financial ETFs in the US. 87% of the fund is composed of large-cap stocks.

Maintaining a high net interest margin has always been part of Wells Fargo’s (WFC) strategy. Wells Fargo has consistently been better than the industry’s average net interest margin.

We explored the most commonly used valuation metric for financial companies—the price-book value. We also understood the relation between price-book value and return on equity.

Co-branding relationships are an important part of the American Express business model. The costs of renewing and extending these relationships is increasing.

PGIM, which distributes Prudential Financial’s (PRU) retail products, has introduced the PGIM Ultra-Short Bond ETF, an actively managed fund focusing on capital appreciation and income generation.

General Electric’s strategy is to reshape its portfolio from a broad conglomerate to a more focused industrial leader.

Banks with significant exposure to the United Kingdom and the European Union are the riskiest investments in a post-Brexit environment.

Invesco has a price-to-book ratio of ~1.4x on an LTM basis.

Charles Schwab (SCHW) has a price-to-earnings ratio of 20.80x on an NTM (next-12-month) basis.

Dimensional Fund Advisors’ top buys are Apple (AAPL), AT&T (T), Microsoft (MSFT), L3Harris Technologies (LHX), and Verizon Communications (VZ).

Wells Fargo’s (WFC) broad operation level strategy over the long run can be described by two words—slow and steady. It doesn’t take many risks. It’s stable and boring.

Morgan Stanley’s 2Q16 earnings beat analysts’ estimates, as the bank reported considerably lower legal expenses.

Wall Street analysts expect Mastercard (MA) to post earnings per share (or EPS) of $1.25 for 1Q18.

S&P Dow Jones Indices and MSCI (MSCI) have decided to shift stock exchange-listed equity REITs and other listed real estate companies from the financial sector (XLF) to a new real estate sector.

Prudential’s investment management division is deploying money to expand its offerings and reach.

Of 16 analysts tracking Invesco in April 2018, four analysts suggested a “buy,” and six analysts gave “hold” ratings on the stock.

TD Ameritrade’s (AMTD) NTM (next-12-month) price-to-book ratio is 4.1x, higher than the peer average of 4.0x, indicating its higher valuation.

There are still pockets of value in US markets. Investors can look to the financial and technology sectors for opportunities in the current economic environment.

General Electric’s industrials and finance services are its two broader divisions, contributing 91% and 9%, respectively, to its consolidated 2015 earnings.

Allianz Group offer property casualty insurance, life and health insurance, and asset management products and services in over 70 countries. The company’s major operations are in Europe.

If you’re preparing your portfolio for the short term, the allocation to cash should be high. As the horizon increases, allocation to cash should go down.

This series analyzes investors’ sentiments toward the financial sector in the major global regions: the United States, Europe, China, Japan, and the Emerging Market economies.

JPMorgan Chase (JPM) is scheduled to announce its fourth-quarter financial results on January 15.

The longer term outlook for Eurozone banks does look more positive than a year ago given reasons including the substantial deleveraging, capital raising by local banks and the European Central Bank (or ECB)’s recently announced ABS purchase program.

The merged entity of Janus Capital Group (JNS) and Henderson Group (HGG) will help accelerate the twin strategic objectives for diversification and growth.

As of September 30, 2015, General Electric’s industrial plus verticals had a much cleaner balance sheet than consolidated GE in 3Q15.

March US crude oil (DBO) (UWT) futures contracts increased 1.8% to $65.61 per barrel on January 24, 2018.

In 4Q17, Prudential Financial’s (PRU) life planner operations’ adjusted operating income fell to $383 million from $395 million in 4Q16 due to foreign currency exchange, policies, and increased expenses.

Wells Fargo continues to remain a sector leader in raising low-cost deposits. It grew its noninterest deposits by nearly 7.0% compared to 4Q14.

Management sets the vision for an organization. Wells Fargo’s vision is large, but it’s already halfway there. Wells Fargo is the largest bank in the U.S.—by market capitalization.

On Friday, January 15, 2016, Société Générale stock fell 5.8%, putting it at the bottom of the SPDR Euro STOXX 50 ETF (FEZ).

The financial sector has had a strong performance so far in September 2017. The Financial Select Sector SPDR Fund (XLF), which tracks the performance of the financial sector, rose nearly 4.4% on a month-to-date basis.

In this series, we’ll compare Bank of America and J.P. Morgan on the basis of their 2Q earnings, profitability, cost-cutting initiatives, and interest rate sensitivities.

Discover Financial’s (DFS) stock price rose from $14.70 at the end of 2009 to $65.50 at the end of 2014. This is an increase of 346%.

Wells Fargo (WFC) seems secure when it comes to risks arising from energy-related loans. Wells Fargo’s energy loan portfolio of $17.8 billion made up 1.7% of the total loan portfolio in 1Q16.

Financial stocks have been rising after a better-than-expected 2Q16. Despite this, Citigroup has downgraded JPMorgan Chase to a “neutral” from a “buy.”

Financial-sector companies such as Bank of America (BAC), U.S. Bancorp (USB), and BlackRock (BLK) shared the spotlight on July 15.

Investors lost confidence due to the uncertainty surrounding the vote, which led to the expectation of the other member nations’ following in the United Kingdom’s footsteps.

If a bank is able to keep its cost of deposits low, it will have a competitive advantage. Wells Fargo has the lowest cost of deposits among its peers—despite having a very high deposit base.

Of the 18 analysts covering Prudential Financial (PRU) in April 2018, six have recommended “strong buy,” five have recommended “buy,” and seven have recommended “hold.”

In 3Q17, Jim Chanos has made a substantial investment in the finance sector (XLF) and various ETFs.

Let’s take a look at where we are in the business cycle, what factors are at play, and what stands to work given current macroeconomic influences.

On February 19, the Financial Select Sector SPDR ETF (XLF) closed at $20.98. This is 10% and 6% below its 100-day and 50-day moving averages, respectively.

Wells Fargo wants to maintain a balance between its interest income from loans and non-interest income. Non-interest income accounts for nearly 49% of Wells Fargo’s revenues.

Wells Fargo’s (WFC) first, and possibly the most important, operational strategy is focusing on cross-selling. It’s the most important pillar of its operational strategy.