The financial sector struggled at the start of this year amid volatility in global markets, negative interest rates implemented by several developed world central banks and uncertainty over when the Federal Reserve will hike benchmark interest rates. The earnings season further highlighted the problems for big banks. However, a hawkish Fed is good news for the SPDR Financial Select Sector Fund ($XLF), which has now gained more than 4.4% in the last five trading sessions.
Higher interest rates will boost banks’ net interest income, especially that of regional banks. Remember that regional banks are more reliant on interest income. Big banks’ trading revenues should also improve though as uncertainty over future rate hikes will end.