Big Banks Continue To Beat Q4 Earnings As Financial ETF Takes A Breather

As the fourth quarter of 2024 comes to a close, big banks have been making headlines with their impressive earnings performances. However, financial ETFs seem to be taking a breather, raising questions about the divergence between the two. Let's dive into the data and explore the potential implications for investors.



The banking sector has been a standout performer in the fourth quarter, with earnings growth expected to reach 12.7% for the Finance sector. This strong performance can be attributed to several factors, including the rising interest rate environment, economic recovery, reduced loan loss provisions, and successful cost control measures. These factors have contributed to the robust earnings growth of big banks, as reflected in the expected earnings growth for the Finance sector.

On the other hand, financial ETFs like the SPDR S&P Bank ETF (KBE) have a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. While the banking sector is expected to show strong earnings growth, the performance of financial ETFs may not perfectly align with the banks' earnings due to factors such as diversification, weighting, and market sentiment.

The divergence in performance between U.S. stocks and global stocks, as well as the dominance of a few AI stocks, has potential implications for investors in financial ETFs. U.S. stocks, particularly the S&P 500, performed better than global stocks in the fourth quarter of 2024. This trend could lead investors to favor U.S.-focused ETFs over global ETFs. However, it's important to note that this trend may not continue indefinitely, and diversifying across regions can help mitigate risks.

Additionally, a few AI stocks, known as the "Magnificent 7" (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla), accounted for more than 100% of the entire S&P 500 return in the fourth quarter. This concentration of returns in a small number of stocks could lead to increased volatility and potential risks for investors in broad-based U.S. equity ETFs. Investors may want to consider sector-specific ETFs focused on AI or technology to capitalize on this trend, but they should be aware of the potential risks associated with concentrated portfolios.



Analysts expect earnings growth to slow among the Magnificent 7 and accelerate for the rest of the S&P 500 in 2025. This could lead to broader stock returns and greater gains from diversification. Investors in financial ETFs should consider this potential shift in performance and adjust their portfolios accordingly.

In conclusion, the divergence in performance between U.S. and global stocks, as well as the dominance of AI stocks, has potential implications for investors in financial ETFs. Investors should consider these trends when allocating their assets and monitor their portfolios for potential risks and opportunities. Diversification across regions, sectors, and asset classes can help mitigate risks and capitalize on market trends. As the earnings season unfolds, investors should stay up-to-date with the latest releases and adjust their portfolios accordingly.