3 Top Financial Sector Stocks to Invest in Now

Key Points

• After showing relative strength in Q1, the financial sector and XLF ETF have underperformed in Q2, down 1.4%.
• After several weeks of consolidating, the XLF and a handful of financial stocks might be setting up for a bullish move and potential outperformance in Q3.
• Three financial outperformers to consider for exposure are Wells Fargo (WFC), up 18% YTD; American Express (AXP), up 23% YTD; and Bank of America (BAC), up 19% YTD.

After displaying relative strength in the first quarter, the financial sector and the Financial Select Sector SPDR ETF NYSE: XLF have underperformed in the second quarter, with the popular financial ETF down 1.4% for the period. 

Several weeks ago, a double top pattern seemed all but confirmed for the ETF. However, after weeks of consolidating, the XLF might be setting up for a bullish move and potential outperformance in Q3. Notably, the ETF has reclaimed critical simple moving averages (SMAs) like the 50-day and 20-day. As the second last week of the quarter came to a close, the ETF outperformed the leading semiconductor sector, closing up 1.3%. 

For investors looking to gain exposure to the financial sector in the third quarter, the XLF ETF provides diverse exposure. Here are three of the sector's top performers this year worth considering.

Wells Fargo Trading at Uptrend Support: Prime Entry Opportunity

Wells Fargo NYSE: WFC, the ETF’s sixth largest holding, has been one of the sector's top performers, with its stock up nearly 18% year-to-date. The stock has a P/E ratio of 12.15 and a dividend yield of 2.41% , making it an attractive investment. WFC is trading at its uptrend support, presenting a prime risk-reward entry if this level holds. 

In its last earnings report on April 12th, 2024, Wells Fargo reported $1.20 per share (EPS), beating the consensus estimate of $1.10. The company earned $20.86 billion, surpassing the expected $20.19 billion. Investors will be looking forward to its following earnings report on July 12th to see if the positive momentum continues.

American Express: A Strong Performer in 2024

American Express NYSE: AXP, the ETF’s ninth largest holding, has seen impressive performance, with its stock up 23% year-to-date. The stock boasts a P/E ratio of 18.9 and a dividend yield of 1.2%. Like Wells Fargo, AXP is trading near its uptrend support, offering a potential entry point for investors. 

On April 19th, 2024, American Express announced $3.33 per share earnings, exceeding the consensus estimate of $2.97. The company earned $15.80 billion, slightly above the expected $15.79 billion, with a 10.6% increase in revenue compared to the same quarter last year. The next earnings date is July 19th.

Bank of America Near 52-Week High: Investor Confidence and Momentum

Bank of America NYSE: BAC is the fifth largest holding of the XLF ETF. BAC has also performed strongly, with its stock up almost 19% year-to-date. Even after such a solid performance, its valuation remains attractive, with a P/E ratio of 13.65 and a substantial dividend yield of 2.43%, making it an attractive option for investors seeking an income component. 

BAC is currently consolidating near its 52-week high, just 2.1% away, indicating strong investor confidence and upward momentum. In its last earnings report on April 16th, 2024, Bank of America reported $0.83 EPS, beating the consensus estimate of $0.77. The financial services provider earned $22.83 billion, compared to the expected $22.39 billion. Bank of America is set to announce its next earnings report on July 16.

XLF ETF: Potential Bullish Setup for Q3

The financial sector, represented by the XLF ETF, is at a potential inflection point after consolidating and reclaiming key SMAs. The recent outperformance in the face of semiconductor sector selling suggests a possible bullish setup for Q3. Investors seeking exposure to the financial sector should consider top performers like Wells Fargo, American Express, and Bank of America, which demonstrate strong fundamentals and favorable technical setups. Monitoring these stocks and the ETF for continued strength and support levels will be crucial for making informed investment decisions in the upcoming quarter.