Key points
- The XLF ETF has shown strong momentum, up 8.48% year-to-date and nearly 32% year-over-year.
- The sector ETF approached significant resistance around $42 after a notable turnaround since October last year.
- Top holdings such as Berkshire Hathaway, JPMorgan Chase and Visa show impressive performances, potentially influencing the sector’s outlook.
- 5 stocks we like better than the Financial Select Sector SPDR Fund
The financial sector and the popular ETF sector Fund for selected financial sectors New York Stock Exchange: XLF continue to demonstrate impressive momentum as we approach 2024. Much like its stellar performance in the latter part of 2023, XLF has maintained its upward trajectory, showing remarkable resilience and growth.
Year to date, the XLF ETF is up an impressive 8.48%, marking a substantial increase of nearly 32% over the previous year. This solid performance stands out compared to the broader market, which saw an increase of 7.26% over the same period.
Since its October low, the XLF has undertaken an impressive turnaround, establishing a formidable uptrend that has continued into the new year. Currently, the ETF is hovering near a significant area of ​​resistance and potential supply, nearing its highs since 2021 around the $42 mark.
As XLF faces this critical juncture following its remarkable six-month rise, could it be time to consider locking in gains?
In answering this question, a crucial aspect to consider is the performance analysis of some of the key players in the industry.
The sector ETF and its key players
The financial ETF provides exposure to major players in the US financial segment. It focuses on large banks through a portfolio weighted exclusively to the S&P 500 Index and avoids small-cap companies.
While the ETF may appear overbought from a technical analysis perspective, it has not yet entered overbought territory, according to its Relative Strength Index (RSI). Its RSI is 66.08, which signals that while it may be on track for overbought territory, it cannot be classified as overbought on this metric alone.
However, its one-year performance and the market’s recent outperformance, coupled with the fact that it is trading near a significant supply area and possible resistance, could make the sector prone to a pullback.
Consider and closely follow the ETF’s most heavily weighted holdings, as they will have a large impact and greatly influence the performance of the sector ETF. Let’s take a look at where the ETF’s top holdings are trading and what it could mean for the sector.
Berkshire Hathaway Inc.
By Warren Buffett Berkshire Hathaway Inc. New York Stock Exchange: BRK.B it is the sector ETF’s top holding, with an impressive 13.04% weight. BRK.B has not only outperformed the overall market and vastly outperformed the sector, but is up 14.43% year-to-date and nearly 40% year-over-year.
With a P/E of 9.22, maintaining a stable uptrend and position above rising SMAs, and expected earnings growth of 15.30%, the company’s position bodes well for the sector as a whole. In the short term, the $400 has now developed as a potential support zone. Therefore, the chances of a pullback in the broader sector could increase if the stock starts to sustain below this level.
JP Morgan Chase & Co.
JP Morgan Chase & Co. New York Stock Exchange: JPM it is the ETF’s second largest holding, with a weight of 9.46%.
Like the largest holding, BRK.B, JPMorgan also outperformed the sector and the overall market. The stock is up 11.88% year-to-date and a staggering 51% year-over-year. Despite trading near historic highs, within an increasingly vertical bullish trend, the stock still maintains an interesting valuation, with a P/E of 11.73.
With uptrend support near current prices, at $185, the stock could be close to a pullback and consolidation. Considering its performance over a longer time horizon, investors may welcome a pullback and an opportunity for price stabilization and reentry, given its relative strength and outperformance.
Visa Inc.
Visa Inc. NYSE:V it is the ETF’s third largest holding. The stock has an 8% weight in the ETF and its performance since the beginning of the year has been broadly in line with that of the sector.
From a technical analysis perspective, V shares are trading near uptrend support, making the stock susceptible to a pullback should the price drop below $280. While the stock has an expected earnings growth of 12.02%, its current P/E of 32.57 is comfortably higher than its peers.
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