Financial Select Sector SPDR Fund (XLF)

They just took out the REIT sector yesterday, and there were good reasons to do that. He likes US banks, and going Long at this stage makes sense.

SPDR Financial (XLF-N) or SPDR S&P Regional Banking? He likes this more because it has the larger cap more diversified names that are in capital markets, investment management, security management and wealth management. Interest rates will eventually move higher, but will stay low for long, and you want to have companies that are more diversified.

(A Top Pick Dec 15/15. Down 11.74%.) He was stopped out in January. You want to see this outperformed the S&P 500 for a few days in a row. If the financials are outperforming, that usually means the rally has lagged, and he haven’t seen that yet.

Very, very disappointing, but at a very attractive level. These stocks have to go if the market is going to go. Doesn’t think they are going to go anytime soon, so doesn’t expect the Dow to do anything but build a base for a while.

US financials tend to do well at this time of the year; Dec 15 until April 13. Tends to outperform the S&P 500 during this time period. A sector that can definitely benefit from rising interest rates.

(A Top Pick July 23/14. Up 5.16%.) Really likes the financial sector. Interest rates moving up is a positive for banks. The economy, labour market and housing getting better are all positives. Still a Buy.

Some people argue that an interest rate increase is going to be bullish for American banks, because they should see steepness in the yield curve, which is positive for the banks. He is not all that certain. In this case you could actually see the yield curve flatten, which would be a major negative. The real driver of the banks is going to be increased loan demand growth and investment banking fees from M&A. The space is a good one to be in, but he thinks the market is vulnerable to a pullback here. He would prefer to own one good bank, such as Wells Fargo (WFC-N), over a basket of average investments.

The banks are not at their long term peaks. If we had another 25% upside on many of them he would be saying to get out of them. Insurance companies have further to run if interest rates really get going.

(Top Pick Dec 23/14, Up 11.55%) He got in a little early because the sector got it hard. This is a reasonable trade. It really lasts until Mid-April and he will look to exit at that time.

US banks ETF? This is an excellent choice, because seasonality is really clicking in from about the middle of December right through until April of each year. The ETF’s that are most useful is the SPDR Financial (XLF-N), or, if looking for large caps, SPDR S&P Bank (KBE-N). KBE looks very interesting on the charts right now.

US financials. We are coming into the year end for banks and will be coming out with their announcements mid-January. They are cheap relative to the Canadian banks. They have been participating in the run and are starting to outperform and have been doing so for the last couple of months relative to the S&P 500. He is expecting this to do well right up to the middle of April. Chart shows a positive trend line, which is going up on a steady, steady basis.

Banks have really under-performed versus the S&P 500. This is due to regulation issues out there and interest rates remaining lower than expected. On valuation you are looking at 1.35X Book Value compared to the TSX financial sector at 1.85X. With the strengthening US economy, a recovering housing market, lower loan loss provisions and better credit issues, this should do quite well.

(Top Pick Feb 20/14, Up 2.85%) Seasonal period for US financials Jan 19 to Apr 13, different from Canadian. It ends on first earnings announcement. This year they pulled off in late March. He sold a few days early.

(Top Pick Mar 13/14, Up 0.32%) Seasonal strength lasted until the first week of April, when he got out.

This one works well from around the 3^rd week in January right through until the 3^rd week in April of each year. This year has an extra kicker. The financial services sector has been kept down during the last couple of years because of regulatory requirements. One of them is to have certain reserves to certain levels before they can increase their dividends. The testing of these reserve requirements will come through very shortly and, once they are through, we have pretty good reason to believe that major US banks will be able to increase their dividends coming into April.