There’s optimism circulating in capital markets that a rate cut could come during the month of September. In turn, traders are already putting themselves in position to potentially benefit from financial stocks. High interest rates the past few years have turned investors off of financial names, particularly those that derive the majority of their income from lending products.
“Financial stocks fell out of favor for many investors, but that appears to be changing,” Barron’s noted. “Positioning in the options market, and recent stock market action, suggests aggressive investors are beginning to prepare for significant gains.”
As mentioned, looming interest rate cuts could certainly boost the bottom line for banks that offer loans as a prime source of revenue. The S&P Financials Sector index is actually up about 20% for the year after trading mostly sideways from the middle of 2022 until the end of 2023.
“Lower rates could spark a surge of profitable business activity for banks and breathe new life into the real estate industry,” Barron’s added. “The financial sector’s recent price performance has been extraordinary, though it hasn’t attracted much attention.”
Leverage the Financial Sector
For a broad financial trade, FAS is an ideal option, as it provides 300% exposure to the performance of the Financial Select Sector Index. The index incorporates companies from the following industries: banks; thrifts & mortgage finance; diversified financial services; consumer finance; capital markets; insurance; and mortgage real estate investment trusts (REITs).
DPST provides more focused exposure to regional banks, seeking 300% of the daily performance of the S&P Regional Banks Select Industry Index. It measures the performance stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) regional banks subindustry.
An Additional Play on Real Estate
Rising values and high interest rates have been a burden to the real estate sector, but rate cuts could help assist with affordability. That said, traders may also want to consider the Direxion Daily Real Estate Bull 3X Shares (DRN ).
DRN provides 300% of the performance of the Real Estate Select Sector Index. The index consists of companies in real estate management, real estate development, and REITs, excluding mortgage REITs.
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