Financial Sector Shines as Key Players Continue to Beat Earnings

Key Points

• The financial sector has outperformed the broader market recently, with the XLF rising nearly 6% this month.
• Key financial stocks, such as JPMorgan Chase, Wells Fargo, and Bank of America, have reported strong earnings, supporting the upward trend.
• Investors will eagerly await Berkshire Hathaway's upcoming earnings report, which could further influence the financial sector's trajectory.

As the year's second half unfolds, we've observed a notable shift in market momentum, with investors rotating from leading sectors into those that previously lagged. The financial sector, in particular, has emerged as a standout performer, significantly outpacing the broader market. The Financial Select Sector SPDR Fund NYSE: XLF has risen nearly 6% this month, outperforming the technology sector and the overall market. In contrast, the tech-heavy QQQ is down 3.6%, and the SPY has slightly declined 0.2%. The question now is whether this outperformance can continue for the rest of the year, especially after several key financial giants have reported their earnings.

A Closer Look at XLF and Its Performance

The XLF, representing the financial sector, has bucked the broader market trend of uncertainty and decline, continuing to establish higher highs and higher lows in its uptrend. Currently trading near its 52-week highs and above rising key Simple Moving Averages (SMAs), the XLF shows a sustainable Relative Strength Index (RSI) of 63.

This positive technical setup is further supported by bullish fund flows: the ETF's net flows as a percentage of assets under management have been 8.28% year-to-date and 3.93% over the past month. These figures indicate strong positive momentum and rotation into the financial sector.

While many key players in the sector have already reported earnings, all eyes are now on Berkshire Hathaway, the top holding in the XLF, which is set to report earnings on August 2nd. The results could provide further clarity and direction for the sector's performance.

Key Earnings Reports for XLF Investors

JPMorgan Chase & Co. NYSE: JPM reported earnings of $6.12 per share for the quarter on July 12th, 2024, significantly beating the consensus estimate of $4.19 by $1.93. The company's revenue reached $50.80 billion, surpassing the estimated $42.23 billion. JPM shares have surged 7.5% this month, approaching their all-time highs just 2.4% away, demonstrating strong resilience and performance in a challenging market environment.

Wells Fargo & Company NYSE: WFC reported its quarterly earnings on the same day, delivering $1.33 EPS, exceeding the consensus estimate of $1.29 by $0.04. The company generated $20.69 billion in revenue for the quarter, above the $20.29 billion expected by analysts, and saw a 0.8% revenue increase compared to the same quarter last year. WFC, the sixth-largest holding in the XLF, is trading just 3.4% below its 52-week high and appears poised for further gains, especially if it can break out above last week's high.

Bank of America NYSE: BAC is the fifth-largest holding in XLF with a 4.8% weighting. Bank of America reported its quarterly earnings on July 16th, 2024. The financial services provider posted $0.83 EPS, surpassing the consensus estimate of $0.79 by $0.04. The company's revenue for the quarter was $25.38 billion, slightly above the expected $25.22 billion, representing a 0.7% increase from the previous year. With a market capitalization of $325 billion, BAC presents an attractive long-term value play, like the stocks mentioned above, with a modest P/E ratio of 14.64 and a forward P/E of just 11.3. Additionally, its dividend yield of 2.3% makes it appealing to income-focused investors.

Financial Sector Positioned for Continued Growth

The sector has shown strong resilience and momentum, outperforming the broader market amid recent rotations. With key players like JPMorgan Chase, Wells Fargo, and Bank of America reporting solid earnings, the sector appears extremely well-positioned for continued growth and outperformance, especially as other sectors experience risk-off. Investors should keep an eye on upcoming reports, especially from Berkshire Hathaway, as these will provide further insight into the sector's potential trajectory for the rest of the year.