Financial Sector (XLF ETF) Takes a Severe Beating

Chart of XLF ETF (Financial Select Sector SPDR Fund ETF)

From scandal-plagued Goldman Sachs (GS) and Deutsche Bank (DB) to banking behemoths like Citigroup (C), Bank of America (BAC), Wells Fargo (WFC) and J.P. Morgan Chase (JPM). The financial services sector has certainly not been doing well this year, particularly since September. This can all be seen clearly in the popular financial sector ETF known as XLF (Financial Select Sector SPDR Fund).

Expectations of rising interest rates have declined due to an apparently dovish-leaning Fed. And banks that generally benefit from higher interest rate environments have taken a hit. Of course, the poor performance of the financial sector is not all due to tamer interest rate expectations. As mentioned, giants like Goldman-Sachs and Deutsche Bank have been hit by separate scandals involving governments and international law enforcement.

Year-to-date, the XLF ETF is down around 8% and well below its 200-day moving average. It’s bad, but not horrible, considering the following: Deutsche Bank is -53% YTD, Goldman -27%, Citigroup -19%, and Wells Fargo -15% (as of the close on Thursday). But that’s actually how it works with ETFs vs stocks. Although XLF is concentrated on only one sector, its holdings are obviously much more diversified and less exposed to unsystematic risk than individual stocks.

Despite this lessened risk, the financial sector is clearly an underperformer. It currently stands as one of the worst performers year-to-date, aside from energy and materials. With Fed interest rate increases expected to slow going into 2019, investors might want to be even more cautious than usual about investing in the financial sector.


IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.

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