XLF: S&P500 Financials ETF rises in 2023; BX, SCHW among movers

Financial Select Sector SPDR Fund ETF(NYSEARCA:XLF), which tracks S&P 500 financials sector, saw a better performance in 2023 as it gained 9.7% in the year, after falling 12% in 2022.

The financials sector’s gain lags significantly behind S&P 500’s rise of around 25%. The sector has had a tough start to the year, with the banking collapse in March pushing it to massive lows, but the sector then saw a recovery, especially, in the last two months of the year.

Industries 2023 Performance

The sector, which faced the brunt of a higher interest rate environment at the start of the year, and a regional bank collapse in March, saw stability after the Federal Reserve decided to hold rates unchanged in the last few months.

Banks rose 6.2%, while Financial Services gained 13.8% in 2023.

U.S. stock fund flows into and out of the financials sector have swung from week to week. The financials-focused ETF had a net outflow of $280.65M.

What Are Top 5 movers in 2023

Gainers: Blackstone (BX) +79%.

Cboe Global Markets (CBOE) +42%.

Capital One Financial (COF) +41%.

Moody’s (MCO) +40%.

Assurant (AIZ) +35%.

Losers: The Charles Schwab (SCHW) -17%.

KeyCorp (KEY) -17%.

Comerica (CMA) -17%.

Truist Financial (TFC) -16%.

PayPal Holdings (PYPL) -14%.

What Analysts Expect

SA contributor Harrison Schwartz is not too optimistic about XLF’s prospects into 2024.

“Numerous small banks collapsed in 2023, with ongoing issues potentially causing more strain on at-risk financial stocks in 2024,” said.

Schwartz added in 2024 he expects bank margins to sink with higher deposit costs as profits naturally slow for capital markets and financial services firms.

Chief investment strategist of CFRA Research, Sam Stovall said the financial sector and specially the regional bank subsector (KRE), have been improving their fundamentals and technicals, “because we are expecting not to have a recession, [and] we do look forward for economic growth to continue in 2024.”

What Quantitative Measures Say

XLF receives a Buy rating from SA quant system with 4.04 score. This comes in large part due to an D grade in the category of risk. The stock, however, received high grades in other areas, with an A- for momentum, B+ for dividends, A+ liquidity and A for Expenses.