Can This Leveraged Financial ETF Bank on More Gains in 2019?
This article was originally published on ETFTrends.com.
The Direxion Daily Financial Bull 3X ETF (FAS) gained 5.62 percent on Wednesday as banks like Goldman Sachs and Bank of America reported positive earnings in what's been a sold start to 2019 for the financial sector.
Goldman Sachs generated $6.04 per share in profit for the fourth quarter of 2018, versus the $4.45 per share estimate of analysts surveyed by data company Refinitiv. The investment bank also posted revenue of $8.08 billion, beating estimates of $7.55 billion.
Bank of America’s earnings came in at 73 cents per share, beating the 63 cents expected. Revenue was $22.7 billion versus initial estimates of $22.397 billion.
“For Bank of America, they performed well in their traditional banking areas,” said Ken Leon, an analyst at CFRA Research. “We did see better-than-peers deposit and loan growth. There was also healthy growth in consumer banking.”
“Overall, Goldman had a good quarter. We did not see a multibillion dollar reserve for Malaysia, but that’s going to be top of mind,” said Leon, referencing the 1MDB scandal.
Citigroup kicked off calendar fourth-quarter earnings season on Monday by reporting stronger-than-expected earnings. Citigroup reported $1.61 in profit per share, besting Wall Street expectations of $1.55 per share.
Wells Fargo & Co. finished 2018 by posting a net income of nearly $6.1 billion, or $1.21 in diluted earnings per share.
FAS is responding to the upside as it creeps upward to its 200-day moving average after a volatile end to 2018:
Financial ETFs Banking on More Gains
The Financial Select Sector SPDR (XLF) gained 2.45 percent, the SPDR S&P Bank ETF (KBE) rose 2.34 percent and the Vanguard Financials ETF (VFH) also rose 2.45 percent. The strength in the financial sector obviously affected the Direxion Daily Financial Bear 3X ETF (FAZ) , which fell 5.20 percent.
With the capital markets possibly expecting a pause in interest rates, could this affect banks' lending businesses to the point where they suffer? Some analysts question whether the sector strength can continue through the rest of 2019.
"I'll say this about financials: It's easy to attack them – they've underperformed the S&P 500 from last February to the lows by about 11.5 percent. But during this period where yields have been plummeting … the banks outperformed the S&P from mid-December to now," notes Tim Seymour of Seymour Asset Management and CNBC's "Fast Money." But with a full slate of earnings reports approaching quickly, the question remains: Can that strong performance continue? Seymour says that if you look at the areas where the banks outperformed, "that tells you something about where they could outperform now."
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