Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
What A War With North Korea Would Look Like - 25th Apr 17
Pensions Are On The Way Out But Retirement Funds Are Not Working Either - 25th Apr 17
Frank Holmes : Gold Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply - 25th Apr 17
3 Reasons Why “Spring Forward, Fall Back” Also Applies To Gold - 25th Apr 17
SPX may be Aiming at the Cycle Top Resistance - 25th Apr 17
Walmart Stock Extending Higher - Elliott Wave Trend Forecast - 25th Apr 17
Google Panics and KILLS YouTube to Appease Mainstream Media and Corporate Advertisers - 25th Apr 17
Gold Price Is 1% Shy of Ripping Higher - 25th Apr 17
Exchange-Traded Funds Make Decisions Easy - 25th Apr 17
Trump Is Among The Institutionally Weakest National Leaders In The World - 25th Apr 17
3 Maps That Explain the Geopolitics of Nuclear Weapons - 25th Apr 17
Risk on Stock Market French Election Euphoria - 24th Apr 17
Fear Campaign Against Americans Continues Nuclear Attack Drills in New York City - 24th Apr 17
Is the Stock Market Bounce Over? - 24th Apr 17
This Could Be One Of the Biggest Winners Of The Electric Car Boom - 24th Apr 17
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17
Can Marine Le Pen Win? French Presidential Election Forecast 2017 - 21st Apr 17
Why Stock Market Investors May Soon Be In For A Rude Awakening - 21st Apr 17
Median US Household’s Wealth Has Declined by 40% Since 2007 - 21st Apr 17
Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefit - 21st Apr 17
U.S. Stock Market and Gold, Post Tomahawks and MOAB - 21st Apr 17
An In Depth Look at the Precious Metals Complex - 20th Apr 17
The Real Story of China’s Strong First-Quarter Growth - 20th Apr 17
3 Types Of Life-Changing Crisis That Make You Wish You Had Some Gold - 20th Apr 17
The Truth is a Dangerous Thing - 20th Apr 17
2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia - 20th Apr 17
Gold’s Next Downside Target Is Around $700… Even if It Breaks Up First - 19th Apr 17
SPX May be Completing its Corrective Pattern - 19th Apr 17
Silver Production Has “Huge Decline” In 2nd Largest Producer Peru - 19th Apr 17
Soothing East Asia's Nerves as Trump's Administration Reaffirms US Power in Asia-Pacific - 19th Apr 17
The Brexit War - Article 50 Triggered, General Election 2017 Called - Let the Games Begin! - 19th Apr 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

Volatile Week for Financial ETFs

Stock-Markets / Exchange Traded Funds Apr 21, 2017 - 12:24 PM GMT

By: Nicholas_Kitonyi

Stock-Markets Earnings season is around, and it tends to add some volatility back into the market. Now, major banks and financial firms have already reported their earnings, most beat expectations. However, there were also mixed results with financials. Goldman Sachs Group Inc (NYSE: GS) and Morgan Stanley (NYSE: MS) were some notable earnings that surprised the Street. Consequently, this added some volatility to exchange-traded funds (ETFs), such as the Financial Select Sector SPDR Fund (NYSEARCA: XLF) and Vanguard Financials ETF (NYSEARCA: VFH).


Financial ETFs and Major Bank Earnings

The Financial Select Sector SPDR Fund aims to provide investors with investment results corresponding to the general price and yield performance of the Financial Select Sector Index, its underlying index. Some of the ETF’s top holdings include JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corp (NYSE: BAC), Wells Fargo & Co (NYSE: WFC), Citigroup Inc (NYSE: C), Goldman Sachs Group Inc, and Morgan Stanley.

JPMorgan Chase beat the Street estimate, after reporting a diluted EPS of $1.65, while the consensus estimate was $1.52. Wells Fargo beat the Zacks consensus EPS estimate by 3 cents per share, after the company had organic growth buoyed by deposit balances and loans. Bank of America also beat the Street’s EPS estimate by 6 cents.

Source: TradingView.com

Take a look at the chart above, you’ll notice how XLF has been experiencing some volatility around earnings, and this could be attributed to the movements in its largest holdings.

According to trader Jason Bond, “Generally, if one of the largest holdings in an industry or sector ETF move, the other holdings could move in sympathy, which could lead to some volatility in the fund. For example, we saw this when Goldman Sachs reported its earnings results, which surprisingly missed analyst estimates, this dragged some stocks in the industry down. In turn, this caused some financial ETFs to finish down on the day.”

The Vanguard Financials ETF is similar to XLF, with its top holdings also including JPM, WFC, BAC, C and GS. In similar fashion, VFH was affected by some of its stop holdings, and experienced some volatility due to some mixed earnings results.

Source: TradingView.com

Goldman Sachs missed the consensus EPS estimate, as well as the consensus revenue estimate, which caused the stock to fall to a four-and-a-half-month low on the day it released its earnings results. Moreover, the company announced its equities trading revenue fell by approximately 6% year over year. Now, the stock had some volatility the day of its earnings, which actually dragged down some other stocks in the banking sector, leading to some volatility in XLF, as you can see on the chart, on April 18, 2017. Similarly, if you look at VFH, the performance that day looks nearly identical to XLF.

One trader stated, “Heading into the earnings, all eyes were on MS because Goldman Sachs reported earnings the day before, and the markets wanted to see how MS would perform in relation to GS.”

Similarly, if a large holding in a sector ETF rises, the entire ETF could rise. Morgan Stanley surprised Wall Street, after Goldman Sachs reported earnings below the consensus estimate. However, MS reported better-than-expected quarterly results, which was primarily attributed to its trading and investment banking operations. What was most surprising was its fixed income trading revenue for the quarter, which doubled year over year.

In previous charts of XLF and VFH, you’ll notice on April 19, 2017, when MS released earnings, XLF gapped up. However, it ended up filling the gap and selling off, now this was primarily due to the overall market pressure.

The Take Away

Earnings season can be very hectic, as we’ve just seen with some companies in the financial services industry. Typically, if one of the largest holdings in a sector ETF moves, the entire fund could move. So when considering, trading or investing in sector ETFs, you’ll want to be mindful of the fund’s top holdings and any events surrounding them.

By Nicholas Kitonyi

Copyright © 2017 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife