“The financial sector is much more than just banks,” says DataTrek Research.
Over the past year, financial stocks in the S&P 500 have outpaced the broader U.S. stock index, signaling investor confidence in the economy, according to DataTrek. Nicholas Colas, co-founder of DataTrek, noted, “Even if you don’t overweight financials, their continued leadership shows that equity markets are optimistic about further economic growth.”
Shares of the Financial Select Sector SPDR Fund (XLF), an ETF tied to financial stocks in the S&P 500, have surged 31.1% over the past 12 months, compared to the S&P 500’s 22.7% gain, per FactSet data.
While the U.S. stock market is up in 2024, there are concerns about the Federal Reserve tightening policy for too long, potentially triggering a recession. However, Colas pointed out that the Atlanta Fed’s GDPNow model shows solid economic growth, with a 2.5% forecast for the third quarter.
“The financial sector is more than just banks, which only make up 25% of the index,” wrote Colas. The sector also includes growth cyclicals like Visa, Mastercard, and S&P Global, alongside asset managers such as BlackRock, Blackstone, and KKR.
Financials have posted strong gains in 2024, with the Financial Select Sector SPDR Fund up 19.6%, beating the S&P 500’s 14.7% rise. However, Colas noted that their 8.4 percentage point outperformance pales compared to prior midcycle periods like 2017-18, when the sector led by up to 20 points.
On Tuesday, the S&P 500 financial sector dropped sharply, with banks like JPMorgan, Goldman Sachs, and Citigroup seeing significant declines. Investors are now anticipating new inflation data from the Bureau of Labor Statistics due Wednesday.
