The U.S. markets registered its fourth straight weekly gain for five-day period ended July 22. All the key U.S. indexes tided over the recent “Brexit” woes that plagued both global and domestic markets. A slew of better-than-expected earnings results and positive economic data prompted this rally.
Most of the banks that reported encouraging second-quarter earnings results over the last two weeks, indicated that despite sufficient exposure to “Brexit” affected nations, these banks have been able to maintain strong fundamentals. Also, recent economic data including the June job data, retail sales and housing report were upbeat.
Additionally, fresh hints of additional stimulus measures by Bank of England (BOE) and Bank of Japan (BOJ) came as a big relief for the financial sector.
Major Banks Post Upbeat Earnings Reports
JPMorgan Chase & Co. (JPM – Analyst Report) reported second-quarter earnings per share and revenues of $1.55 and $25.2 billion, which surpassed the Zacks Consensus Estimate of $1.43 and $24.1 billion, respectively. Citigroup Inc’s (C – Analyst Report) second-quarter earnings from continuing operations per share of $1.25 outpaced the Zacks Consensus Estimate of $1.09.
Goldman Sachs Group, Inc. (GS – Analyst Report) came up with earnings per share of $3.72, significantly above the Zacks Consensus Estimate of $3.01. Goldman reported revenues of $7.9 billion, outpacing the Zacks Consensus Estimate of $7.6 billion. Bank of America Corporation (BAC – Analyst Report) posted second-quarter earnings of 36 cents per share, which beat the Zacks Consensus Estimate of 34 cents.
Economic Data to Watch For
In June, the U.S. economy created a total of 287,000 jobs, significantly higher than May’s downwardly revised job number of only 11,000. Moreover, producer price index increased last month indicating a healthier level of inflation and growth. Additionally, sales at retail stores and restaurants advanced 0.6% in June from the prior month to a seasonally adjusted $456.98 billion.
Existing homes sales increased 1.1% to a seasonally adjusted annual rate of 5.57 million in June. Housing starts rose to 1.189 million from 1.135 million May. Building permits also increased from 1.136 million May to 1.153 million in June. Also, new home sales reached its best level in June, since Feb 2008.
Central Banks Hint at Easing Monetary Policies
Bank of England (BOE) surprised the markets by keeping its rate unchanged at 0.5% but hinted at introducing fresh economic stimulus measures next month. Additionally, following his party’s victory in Japan’s upper house election, Prime Minister Shinzo Abe is expected to come up with additional economic stimulus measures.
Further, in its two-day policy meeting concluding on July 27, the Fed is unlikely to raise interest rates. But it might give some ideas on the timing of the next rate hike this year. The recent encouraging economic data might result in an earlier-than-anticipated rate hike, which will be favorable for the financial sector.
Buy These Four Financial Mutual Funds
As discussed above, most of the recent data related to the overall financial sector is encouraging. This is borne out by the fact that Financial Services SPDR (XLFS) gained 7.3% in the last one month, becoming one of the best performing sectors among the major S&P 500 sectors. Additionally, mutual funds related to this sector also registered strong returns. According to Morningstar, the financial mutual fund posted a one-month return of 6%.
Banking on this encouraging backdrop, we have selected four financial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three-year and five-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Hancock Regional Bank A(FRBAX – MF report) invests the lion’s shares of its assets in securities of lending companies and regional banks. FRBAX seeks long-term appreciation of capital and income. Hancock Regional Bank A has three-year and five-year annualized returns of 8.3% and 13.3%, respectively. FRBAX has an expense ratio of 1.26% as compared to the category average of 1.46% and carries a Zacks Mutual Fund Rank #2.
Franklin Mutual Financial Services A(TFSIX – MF report) seeks growth of income and capital. TFSIX invests a major portion of its assets in securities of companies from financial services sector, which are believed to be undervalued. Franklin Mutual Financial Services A has three-year and five-year annualized returns of 6.9% and 8.4%, respectively. TFSIX has an expense ratio of 1.41% as compared to the category average of 1.46% and carries a Zacks Mutual Fund Rank #2.
Schwab Financial Services(SWFFX – MF report) invests more than 80% of its assets in securities of various financial services companies. SWFFX seeks capital appreciation for the long run. Schwab Financial Services has three-year and five-year annualized returns of 4.1% and 9.2%, respectively. SWFFX has an expense ratio of 0.90% as compared to the category average of 1.46% and carries a Zacks Mutual Fund Rank #2.
Fidelity Select Consumer Finance Portfolio(FSVLX – MF report) seeks growth of capital. FSVLX invests majority of its assets in securities of companies which provide consumer finance products and services. Fidelity Select Consumer Finance Portfolio has three-year and five-year annualized returns of 3.5% and 11.2%, respectively. FSVLX has an expense ratio of 0.89% as compared to the category average of 1.46% and carries a Zacks Mutual Fund Rank #1.
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank.
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