Exchange-traded funds tied to the financial sector rallied on Friday, with the largest nearing its highest level in almost nine years on the back of a pair of strong results in the space.
The Financial Select Sector SPDR ETF XLF, +1.17% rose 1.6%, and was within striking distance of a new 52-week high, which would also represent its highest level since early 2008—before the severity of the financial crisis would be known. The SPDR S&P Bank ETF KBE, +1.64% climbed 2.1% on Friday, and was also near its highest levels since 2008.
The gains came after J.P. Morgan Chase & Co. JPM, +1.11% reported earnings and revenue that surged past expectations, helped by its trading division, while earnings at Bank of America Corp. BAC, +1.09% rose 43%. Shares of J.P. Morgan rose 1.9% while Bank of America added 1.4%.
“J.P. Morgan had a terrific beat; BofA, a very nice one,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services, a New York-based investment bank. “You’d have to believe that the economy will be lackluster going forward to think that banks won’t do well from here. Their valuations are still good, because they have more earnings power than investors are giving them credit for.”
Wells Fargo has lagged J.P. Morgan and Bank of America over the last 52 weeks, rising less than 12% compared to the more than 50% gains for the other banks.
The three financial giants are all among the top four components of the Financial Select Sector ETF, which, with $ 23.2 billion in assets, is the largest to track the sector. The fund has seen inflows of $ 808.7 million thus far in 2017, according to FactSet data, the sixth-most of any ETF.
Financials are up nearly 20% since November’s presidential election, accounting for the bulk of the broader market’s gains, as investors have bet it will benefit from deregulation under President-elect Donald Trump’s incoming administration, as well as an environment that is expected to see rising interest rates.