The largest banks of the United States posted strong earnings results in the ongoing earnings season. This happened despite trade tensions. While retail investors may find the volatility worrying, particularly those needing to liquidate equities or seeking quick gains, Wall Street banks benefited.
In the second quarter, the five largest U.S. banks reported a collective 17% rise in trading revenues and a 7% increase in investment banking revenues compared to the same quarter last year (read: Banks Lift Payouts Amid Successful Stress Test: ETFs in Focus).
Deal-Making in Fine Fettle Despite Trade Uncertainty
Despite ongoing tariff threats and policy uncertainty, banks reported that corporate clients remain undeterred. Companies are still pursuing mergers, issuing debt and going public. This shows that strategic initiatives are in place, irrespective of short-term trade risks.
For banks’ equities trading desks, volatility isn't a threat; it’s a business driver. Their profits don’t hinge on whether markets rise or fall, but on the volume and frequency of trades. As stock prices remained volatile this year, banks benefited from elevated trading activity. In the future, too, banks will be there to enable trades and collect fees at every turn.
Barclays Stays Positive on Financials Despite Rate Cut Expectations
Barclays remains optimistic about the financial sector, even as markets anticipate lower interest rates over the next year, as quoted on CNBC. Addressing investor concerns, strategist Venu Krishna pointed to the historical trend.
He noted that historical Fed rate-cutting cycles since 1990 show that financials tend to perform well, save for the central bank, which is lowering rates in response to a recession.The U.S. economy grew an annualized 3% in Q2 of 2025, rebounding from a 0.5% contraction in Q1, and beating expectations of a 2.4% rise, according to the advance estimate. This shows that the economic backdrop is beneficial for banks.
The Barclays strategist also highlighted likely deregulation measures and increased M&A activity as added catalysts that could drive financial stocks higher. The valuation of this group of stocks is also cheaper. The PE Ratio (TTM) of the exchange-traded fund (ETF) XLF stands at 18.33X. This comes against the P/E ratio of 27.32X possessed by SPDR S&P 500 ETF SPY.
ETFs in Focus
Against this backdrop, below we highlight a few financials-based ETFs that could be your picks now.
Financial Select Sector SPDR Fund XLF – Up 9.3% YTD
Vanguard Financials ETF VFH – Up 9.2% YTD
Invesco KBW Bank ETF KBWB – Up 13.0% YTD
iShares U.S. Financials ETF IYF – Up 11.2% YTD
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SPDR S&P 500 ETF (SPY): ETF Research Reports Financial Select Sector SPDR ETF (XLF): ETF Research Reports Invesco KBW Bank ETF (KBWB): ETF Research Reports Vanguard Financials ETF (VFH): ETF Research Reports iShares U.S. Financials ETF (IYF): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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