2024-04-09 14:09:20 ET
Summary
- We have downgraded the rating on the Financial Select Sector SPDR® Fund ETF from a BUY to a HOLD.
- Since I wrote my buy rating, the XLF ETF has seen a price advancement of more than 20% in less than 1 year.
- Together with its dividend decrease, the valuation has become expensive.
- My other consideration for this downgrade is that now I see a reduced possibility of substantial rate cuts compared to ~1 year ago.
Thesis
This article’s goal is to downgrade my rating on the Financial Select Sector SPDR® Fund ETF ( XLF ) from a BUY to a HOLD. As shown in the chart below, we last covered XLF back in July 2023 with a BUY rating. The main considerations then were the following:
First, I see it as a very plausible scenario for interest rates to either stabilize or even decrease. And lower rates are especially helpful for bank performance. Second, both in terms of dividend yield Z-score and also yield spread against risk-free interests (represented by 10-year treasury bond rates), the financial sector was ranked the 3rd most attractive sector at that time, only after energy and small caps.
Read the full article on Seeking Alpha
For further details see:
XLF: Why I Downgrade It To Hold