Big Banks or Big Bust? Fed, Earnings & Tariffs Stir the Pot
Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Tech stocks and the artificial intelligence (AI) trade have been all the rage over the past few years. However, stodgy financial and bank stocks are holding up relatively better than tech so far in a rocky 2025. The Financial Select Sector Index* is up 1.15% year to date as of March 18, while the Technology Select Sector Index* is down -8.89%, according to S&P Dow Jones Indices. In particular, semiconductors and other tech highflyers have been pounded on the potential DeepSeek AI threat and valuation concerns.
Below is a daily chart of the Financial Select Sector Index* as of March 12, 2025. Recent market weakness has pushed the index below its 50-day moving average.*
Source: StockCharts.com, March 12, 2025.
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results.
The financial sector is not without challenges, as global economic uncertainties and trade tensions continue to influence market dynamics.
For those interested in trading the financial sector, there are plenty of catalysts to consider, including upcoming earnings from the big banks and a looming Federal Reserve meeting.
Upcoming Bank Earnings: Key Dates and Expectations
The forthcoming earnings season is poised to shed light on the financial sector’s health. Major banks are scheduled to report their quarterly earnings throughout April:
- JPMorgan
- Bank of America
- Wells Fargo
- Citigroup
- Goldman Sachs
Source: Nasdaq Earnings Calendar
Investors will closely monitor these reports for insights into loan growth, net interest margins, and the impact of economic conditions on financial institutions. And on the earnings calls, traders will also be looking for any color on how Trump administration policies are impacting consumer sentiment and financial markets.
Macro Uncertainty: Tariffs and Fed Policy
The financial sector’s trajectory is intertwined with broader economic factors. For example, recent escalations in trade tensions, including new tariffs, have heightened market volatility* and raised concerns about global economic growth, the Guardian reports.
Federal Reserve interest rate policy is another big question mark for financial and bank stocks. Traders will watch The Federal Open Market Committee (FOMC) like hawks for any signals about the future path of interest rates. Any Fed communication on its stance on inflation, economic growth, and financial stability will have significant implications for financial stocks.
Here are some potential bullish catalysts for the financial sector based on the Fed moves:
- Potential Rate Cuts: If the Fed hints at or implements a rate cut, borrowing costs could decrease, stimulating loan demand for banks and financial institutions. Lower rates might also boost asset prices, benefiting investment banks and asset managers.
- Soft Landing Narrative: If the Fed signals confidence in a controlled economic slowdown rather than a recession, it could reassure investors that credit quality remains stable, supporting bank profitability.
- Market Relief Rally: Any indication of dovish policy could ease investor concerns and fuel a broader market rally, lifting financial stocks along with other sectors.
On the other hand, here’s how the Fed could potentially rain on the financial sector from a bearish perspective:
- Higher-for-Longer Policy: If the Fed remains hawkish and signals that rates will stay elevated, financial institutions may face tighter credit conditions, reduced lending activity, and slower economic growth.
- Recession Fears: A more aggressive stance on inflation*, such as a warning about persistent price pressures, could increase concerns about an economic downturn, raising the risk of loan defaults and delinquencies.
- Market Volatility: If the Fed’s tone is uncertain or mixed, financial stocks may experience heightened volatility as traders reassess interest rate expectations and economic projections.
Key Economic Releases and Potential Impacts
Several upcoming economic releases could significantly influence the financial sector’s trajectory:
- Gross Domestic Product (GDP) Report: The Bureau of Economic Analysis (BEA) is scheduled to release its third estimate for Q4 2024 GDP on March 27.
- Bullish Perspective: An upward revision or stronger-than-expected GDP growth may signal economic resilience, potentially boosting lending activities and profitability for banks.
- Bearish Perspective: Conversely, a downward revision could indicate economic slowing, raising concerns about loan defaults and reduced financial activity.
- Employment Situation Report: The Bureau of Labor Statistics (BLS) will publish its March 2025 employment report on April 4.
- Bullish Perspective: Strong job growth and a declining unemployment rate could enhance consumer confidence, leading to increased borrowing and spending, benefiting financial institutions.
- Bearish Perspective: Weak employment figures might suggest economic headwinds, potentially dampening loan demand and increasing credit risk.
- Consumer Price Index (CPI) Data: The BLS is set to release March 2025 consumer price index (CPI)* data on April 10.
- Bullish Perspective: Moderate inflation could maintain the Fed’s current monetary stance, providing a stable environment for financial markets.
- Bearish Perspective: Elevated inflation may prompt the Fed to tighten monetary policy, potentially increasing borrowing costs and pressuring profit margins for financial entities.
Leveraged ETFs for Tactical Financial Sector Exposure
Traders seeking leveraged exposure to the financial sector may want to consider Direxion Daily Financial Bull 3X Shares (Ticker: FAS), which seeks daily investment results, before fees and expenses, of 300% of the performance of the Financial Select Sector Index*. On the other hand, Direxion Daily Financial Bear 3X Shares (Ticker: FAZ) seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the Financial Select Sector Index.
For traders interested in regional bank stocks, Direxion Daily Regional Banks Bull 3X Shares (Ticker: DPST) seeks daily investment results, before fees and expenses, of 300% of the performance of the S&P Regional Banks Select Industry Index*.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The Financial Select Sector Index (IXMTR) is provided by S&P Dow Jones Indices and includes securities of companies from the following industries: Banks; Thrifts & Mortgage Finance; Diversified Financial Services; Consumer Finance; Capital Markets; Insurance; and Mortgage Real Estate Investment Trusts (REITs).
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
The S&P Regional Banks Select Industry Index (SPSIRBKT) is a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) regional banks sub-industry.
One cannot directly invest in an index.
The “Financial Select Sector Index” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Financial Select Sector Index.
The "Technology Select Sector Index" is a product of S&P Dow Jones Indices LLC ("SPDJI"), and has been licensed for use by Rafferty Asset Management, LLC ("Rafferty"). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Technology Select Sector Index.
The “S&P Regional Banks Select Industry Index” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty Asset Management, LLC (“Rafferty”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Regional Banks Select Industry Index.
Direxion Shares Risks – An investment in a Fund involves risk, including the possible loss of principal. A Fund is non-diversified and includes risks associated with the Fund’s concentrating its investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause prices to fluctuate over time.
Leverage Risk – Each Fund obtains investment exposure in excess of its net assets by utilizing leverage and may lose more money in market conditions that are adverse to its investment objective than a fund that does not utilize leverage. A total loss may occur in a single day. Leverage will also have the effect of magnifying any differences in the Fund’s correlation or inverse correlation with the Index and may increase the volatility of the Fund.
Daily Index Correlation Risk – A number of factors may affect the Bull Fund’s ability to achieve a high degree of correlation with the Index and therefore achieve its daily leveraged investment objective. The Bull Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Bull Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Bull Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Daily Inverse Index Correlation Risk – A number of factors may affect the Bear Fund’s ability to achieve a high degree of inverse correlation with the Index and therefore achieve its daily inverse leveraged investment objective. The Bear Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Bear Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Bear Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Financials Sector Risk — Performance of companies in the financials sector may be materially impacted by many factors, including but not limited to, government regulations, economic conditions, credit rating downgrades, changes in interest rates and decreased liquidity in credit markets.
Banking Industry Risk – Companies within the banking industry can be adversely impacted by many factors, including, among others, changes in government regulations, economic conditions, and interest rates, credit rating downgrades, adverse public perception and decreased liquidity in credit markets.
Additional risks of each Fund include Effects of Compounding and Market Volatility Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs Risk), Cash Transaction Risk, Passive Investment and Index Performance Risk and for the Direxion Daily Financial Bear 3X Shares, Shorting or Inverse Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of a Fund.