After spending much of the year lagging the broader market, the financial services sector has recently been gaining
steam. Over the past month, the largest exchange traded fund (ETF) tracking the sector is higher by about 6.3 percent.
Those gains could be tested this week amid testimony from Federal Reserve Chair Janet Yellen and an avalanche of
earnings reports from the biggest U.S. banks. In other words, this week could be the ideal time to consider the Direxion Daily
Financial Bull 3X Shares (NYSEARCA:FAS) and the Direxion Daily Financial Bear 3X Shares (NYSEARCA:FAZ). FAS attempts to
deliver triple the daily returns of the Russell 1000 Financial Service Index while FAZ looks to deliver triple the daily inverse
returns of that index.
As TD
Ameritrade's JJ Kinahan noted last week, “The financial sector is forecasted to report year-over-year earnings growth of 6.8
percent, the third highest out of the 11 sectors in the S&P 500, according to FactSet. At the industry level this quarter, only
the insurance industry is expected to report double-digit earnings growth (20 percent); if the insurance industry is excluded from
the financial sector’s estimated earnings growth rate, it would drop to 3.8 percent from 6.8 percent, also according to
FactSet.”
What's On Deck
Among the marquee bank stocks reporting second-quarter results this week are Citigroup Inc. (NYSE: C), JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo Co. (NYSE: WFC). Those are three of the top 10 holdings in the index FAS and FAZ track as those
stocks combine for about 16 percent of the index's weight.
Bank of America Corp. (NYSE: BAC) and
Goldman Sachs Group Inc. (NYSE: GS), a combined 7 percent
of the Russell 1000 Financial Services Index, step into the earnings confessional next, indicating that FAS and FAZ should be on
the radars of active traders for a couple of weeks.
In advance of second-quarter earnings, some data points suggest traders are already rotating to FAS and FAZ. For
example for the five-day period ended July 6th, volume in FAS was 16 percent above the trailing 20-day average, according to Direxion data. Volume in the
bearish FAZ also saw a modest increase over that period.
Other Ideas
The combination of earnings and Fed commentary could also spark interest in rate-sensitive regional
banks. Those scenarios could be short-term catalysts for the Direxion Daily Regional Banks Bull 3X Shares (NYSE:DPST)
and the Direxion Daily Regional Banks Bear 3X Shares (NYSE:WDRW).
DPST aims to deliver triple the daily returns of the S&P Regional Banks Select Industry Index while WDRW looks to
deliver triple the daily inverse returns of that widely followed regional bank benchmark.
Related Links:
Best Sector ETFs For July.
A Neutral View On A
Big Bank ETF.
Image credit: Ken Teegartin,
Flickr
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.