Earnings season arrives in earnest this week with the traditional launch of a spate of reports from the financial services sector, the S&P 500's third-largest sector allocation.
Broadly speaking, S&P 500 members are expected to post a 1.5% decline in fourth-quarter earnings. Fortunately, some groups will report year-over-year earnings increases.
“Five sectors are predicted to report year-over-year earnings growth, led by the Utilities and Financials sectors,” according to FactSet.
That's impressive when considering the Federal Reserve cut interest rates three times last year, prompting a slew of warnings from large money center banks about crimped net interest income margins.
The bank earnings ball gets rolling in a big way on Tuesday when Dow component JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC) report. Bank of America (NYSE: BAC), Dow component Goldman Sachs (NYSE: GS) and US Bancorp (NYSE: USB), among others report on Wednesday and the financial services reports just keep going from there.
With that in mind, here are some exchange traded funds to keep an eye on this week.
Financial Select Sector SPDR (XLF)
Just a few days into 2020, it appears as though some market participants are betting that the financial services sector is a sound idea for the new year or that the Financial Select Sector SPDR (NYSE: XLF) will be stirred by earnings because the fund was one of the top asset-gathering ETFs last week and has added $993.10 million in new capital since the start of the year.
The $25.54 billion XLF, one of the largest sector ETFs of any stripe, isn't a dedicated bank fund, but the aforementioned stocks combine for about 36% of XLF's weight, cementing the notion that this sector ETF will be in the spotlight over the next couple of weeks.
At 12.38% of XLF's weight, JPMorgan Chase could set the earnings season tone for XLF.
Invesco KBW Bank ETF (KBWB)
The Invesco KBW Bank ETF (NASDAQ: KBWB) is a dedicated bank ETF and tracks the widely followed KBW Nasdaq Bank Index. The $583.1 million confirms one of the reasons why investors may be flocking to bank stocks and ETFs: the sector is a value destination. Nearly 90% of KBWB's 24 holdings are classified as value stocks.
Nine of KBWB's top 10 holdings step into the earnings confessional this week and those nine stocks, including Citigroup and Bank of America, combine for more than 56% of the fund's weight.
Bottom line: This week will go a long way toward determining KBWB's first-quarter fortunes.
Direxion Daily Financial Bull 3x Shares (FAS)
Or the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) for the bearish traders among us. Either way, FAZ and the Direxion Daily Financial Bull 3x Shares (NYSE: FAS) should give traders what they crave this week: the potential for big moves.
The bullish FAS attempts to deliver triple the daily returns of the Russell 1000 Financial Services Index while the bearish FAZ looks to deliver triple the daily inverse returns of that benchmark.
Earnings reports make for the ideal events for which to trade leveraged ETFs. Proof: four of the top 10 holdings in the Russell 1000 Financial Services Index report earnings this week.
Disclosure: The author owns shares of XLF.