Obama Victory, Fiscal Cliff Cloud Financial ETFs

ETF Trends

Financial sector ETFs rose Thursday to recoup some of the losses they suffered during the previous session’s dramatic sell-off following President Barack Obama’s election victory and on U.S. fiscal cliff worries.

Financial Select Sector SPDR (XLF) plunged more than 3% on Wednesday on volume of nearly 117 million shares, more than double the daily average the past three months.

In the days leading up to the election, traders appeared to be positioning for a Romney victory by snapping up call options on the financial ETF. Call buying was a “recent theme there,” said Paul Weisbruch at Street One Financial.

However, options traders dumped those bullish bets en masse on Wednesday morning after Obama secured four more years in the White House.

“It’s fairly obvious people were using XLF as a vehicle to try to take advantage of a Romney win in the presidential election,” said Brian Overby, senior options analyst at TradeKing, in a WSJ.com MarketBeat report. On Wednesday morning “traders bailed in epic proportions at the open, just trying to salvage what they could get,” he said.

“Bank stocks were in focus ahead of the election amid expectations a Mitt Romney administration would attempt to overturn the Dodd-Frank financial-overhaul law passed in 2010, potentially easing the way for banks to boost revenues squeezed by stricter regulations,” MarketBeat reported.

The sell-off in financial ETFs was also likely driven by concerns over the looming fiscal cliff.

Obama’s re-election “means plenty of uncertainty surrounding the fiscal cliff,” said John Hardy, currency strategist at Saxo Bank, in a MarketWatch report Wednesday.

“You don’t have to be a genius to figure out that financials would clearly suffer from the U.S. economy falling off the fiscal cliff,” added Keefe Bruyette & Woods analysts in a note Wednesday. “Given the high betas in financial stocks, the group would clearly underperform the broader market.”

Financial Select Sector SPDR

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The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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