Of late, the finance sector has been putting up an impressive performance, with some monthly volatility. The United States’ economic health, on which this sector is largely dependent, has been displaying steady improvement with increasing real GDP numbers, declining unemployment rate, improving consumer spending and stabilizing the housing market.
Further, the likelihood of another rate hike in the near future continues to dominate the headlines. A stronger-than-expected U.S. payroll data released last week has raised expectations for the Fed interest rate hike in September, third this year. Except for REITs, the other Finance sector constituents — banks, brokerage firms, asset managers and insurers — usually benefit from a rising rate environment.
Riding on higher rates and improved lending margins, along with the lesser regulations under the Trump administration, the finance sector has emerged triumphant. The S&P 500 Financials (Sector) Index has gained around 18.5%, outperforming S&P 500 growth of 15.9%, over the past year.
While escalating trade-war tensions between the United States, China, and the European Union continued to dampen investor sentiment, strong economic data on the domestic front largely mitigated this.
Overall, the continuation of structural changes, with investments in newer technologies, and a rising rate environment keep the prospects for financial stocks bright.
While September is generally considered the worst performing month for the stock market, here we bring a handful of financial stocks that are expected to generate good returns, supported by the above-mentioned catalysts.
Selecting the Winning Stocks
We have taken the help of the Zacks Stock Screener to shortlist financial stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy), and a VGM Score of A or B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank of 1 or 2, offer the best upside potential.
