Financials Swing Higher Despite Growing Anger at Banks (XLF)

July 18, 2012 7:35 AM EDT
The Financial Select Sector SPDR ETF (NYSE: XLF) has outperformed the S&P 500 over the past five trading sessions. The turnaround in financials began when JPMorgan (NYSE: JPM) reported earnings last Friday. Since then, several other banks have reported earnings, including Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C). All three companies reported better-than-expected earnings.

This morning, Goldman and Citi received positive responses from two separate analysts. UBS analyst Brennan Hawken maintained his Buy rating on Goldman, noting the better-than-expected earnings report. Meanwhile, Barclays' Jason Goldberg started coverage on Citi, noting the company’s ability to offset a lower-than-projected net interest margin – a positive sign for banks struggling to maintain profitability in the current interest rate environment.

Going into earnings, net interest margin and trading profitability were major concerns highlighted by analysts. The industry has also been plagued by a seemingly never-ending torrent of negative headlines, including the London Whale and the Libor scandal. So far the headlines have created a buying opportunity for banks, but that could change if there is another turn in sentiment...

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