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Financial ETFs Take Lead in Slipping Market

This article was originally published on ETFTrends.com.

U.S. equities slipped into the red in late-Monday trading, but banks and financial sector-related ETFs stood out from the crowd.

The the financial sector helped pare some of the losses U.S. stocks Monday, with the Financial Select Sector SPDR (NYSEArca: XLF) up 0.7%.

Financial sector-related ETFs were leading the charge on Monday, despite the broader market weakness. For example, the Invesco S&P SmallCap Financials Portfolio (PSCF) gained 2.1%, SPDR S&P Regional Banking ETF (KRE) increased 1.9%, First Trust NASDAQ ABA Community Bank Index Fund (QABA) rose 1.8% and iShares U.S. Regional Banks ETF (IAT) advanced 1.8%, compared to the 1.2% decline in the S&P 500.

The strength in financials could be a sign of so-called value stocks gaining more favor after outperforming or at least holding up better than growth stocks in the recent market pullback.

XLF trades at a 13.2 price-to-earnings and a 1.4 price-to-book. In comparison, the S&P 500 is trading around a 17.9 P/E and 3.2 P/B.

Investors Shifting Styles

Investors may also be shifting styles after growth-oriented stocks outperformed for most of the year, with many taking a second look at the fly-high and potentially higher risk associated with the growth stocks ahead.

“These growth stocks just got so over-valued it is only natural to see some air come out of that balloon. That could continue for a while,” Stephen Massocca, senior vice president at Wedbush Securities, told Reuters. “But in terms of the rest of the market that doesn’t have those kinds of extreme valuations, I think we are probably pretty close to the end of the decline.”

Related: ETF Plays for a Divided Midterm Elections

Furthermore, some are concerned about the potential negative ramifications of the midterm elections on growth stocks, notably tech sector names.

“Probably the most pervasive headwind is concern about midterm elections,” Kristina Hooper, chief global market strategist at Invesco, told Reuters. “That is weighing down stocks, particularly technology as there is greater concern about regulation.”

For more information on the market sectors, visit our sector ETFs category.

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