Financials Fall 2.52% in Q3 as Interest Rates Rise
The financial sector underperformed the broader market in Q3, with the State Street Financial Select Sector SPDR ETF XLF falling 2.52%, compared to a 2.25% gain for the S&P 500 (SP500). This put financials at sixth place among the 11 S&P 500 sector ETFs during the quarter.
According to Seeking Alpha analyst Ian Bezek, the weakness in financial stocks during the third quarter could be attributed to the rapid rise in interest rates, which may put stress on consumers, particularly amid higher inflation and a weak housing market.
Bezek noted that higher rates could contribute to an economic slowdown, which may have ramifications across the financial sector. On the individual front, PayPal PYPL led financial stocks during the quarter, rising 16.85%, thanks in part to M&A chatter.
Other top financial sector performers of the quarter included Intercontinental Exchange ICE, with a 13.82% gain, and Coinbase Global COIN, which advanced 13.11% as cryptocurrency activity surged. CME Group CME and Cboe Global Markets CBOE rounded out the top five gainers, rising 12.49% and 12.29%, respectively.
On the other hand, Aon AON led the sector’s declines, falling 22.62% during the quarter. Cincinnati Financial CINF followed with a 15.95% decline, while Huntington Bancshares HBAN fell 15.56%. American Express AXP and Erie Indemnity ERIE rounded out the five biggest decliners, falling 14.60% and 14.07%, respectively.
Bezek expressed concern about the banking side, noting that the sudden surge in interest rates is reminiscent of 2023, when several banks failed due to their balance sheets being caught off-balance by the big spike in rates.