XLF Rises Amid Market Fluctuations; Spotlight on Blackstone and Charles Schwab

In a year marked by recovery and challenges, the Financial Select Sector SPDR Fund ETF (XLF), a key barometer for the financial sector of the S&P 500, experienced a significant rebound. After a 12% dip in 2022, XLF saw its fortunes reverse in 2023, with a notable gain of 9.7%. This rise, however, did not match the broader S&P 500's impressive 25% increase. A rocky start to the year, including a banking sector shake-up in March, gave way to a more stable final two months for the sector.

Industries Navigate Through Choppy Waters

Initially struggling with higher interest rates and the regional banking upheaval, financial institutions regained some equilibrium. This stability followed the Federal Reserve's decision to pause rate hikes later in the year. By the end of 2023, banks saw a 6.2% rise, while Financial Services surged by 13.8%. Fluctuating weekly, US stock funds saw a net outflow of $280.65 million from the financial sector.

Key Contributors to Sector Performance

Among individual movers, Blackstone (BX) notably surged ahead with an impressive 79% uptick. Other prominent gainers were Cboe Global Markets (CBOE) and Capital One Financial (COF), hanging strong at 42% and 41%, respectively, along with Moody's (MCO) at 40% and Assurant (AIZ) with a 35% climb. On the flip side, Charles Schwab (SCHW) emerged as a significant decliner, shedding 17% of its value – a trend shared by KeyCorp (KEY), Comerica (CMA), and Truist Financial (TFC), all experiencing similar setbacks.

Looking Ahead: Analyst Perspectives

While acknowledging the past year’s bank collapses, analyst Harrison Schwartz projects a challenging 2024, with potential strain on vulnerable financial stocks. He anticipates squeezed bank margins due to increasing deposit costs and a general slowdown in profits for capital market and financial service firms. In contrast, Sam Stovall of CFRA Research offers a more optimistic outlook, highlighting improving fundamentals and technicals within the financial sector, especially regional banks, anticipating continued economic growth without a looming recession.

Quantitative Assessments of XLF

The ETF currently garners a 'Buy' rating from SA’s quantitative system with a score of 4.04. Despite receiving a 'D' in risk, XLF scored high in other significant areas including momentum (A-), dividends (B+), liquidity (A+), and expense ratios (A).

XLF, Financials, ETF