Financial ETFs Active On S&P Downgrade, BofA $5 Threshold

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Exchange traded funds tracking the financial sector were in the limelight Wednesday after Standard & Poor’s downgraded its ratings on a half-dozen major U.S. banks. Meanwhile, key component Bank of America (NYSE:BAC) was in danger of seeing its shares fall below $5, which could trigger additional selling from institutional investors.

S&P downgraded Bank of America, Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), JP Morgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Wells Fargo (NYSE:WFC) and several other of the world’s largest banks.

Financial Select Sector SPDR (NYSEARCA:XLF) was set for a higher open Wednesday as markets got a boost after China cut the reserve requirement ratio for its banks.

The financial sector ETF has lagged the market this year, losing 23.6% versus a 3.1% decline for the S&P 500, according to Morningstar.

Some analysts say the banking sector needs to stabilize before the broader market can enjoy a sustainable rally.

Bank of America shares are struggling to hold the key $5 level. Some institutional investors are prohibited from owning stocks under $5 a share.

“Beyond the S&P downgrade, trading could become even more complicated in Bank of America’s stock, if it falls below $5. Under that threshold, many broker-dealers will not allow investors to buy or short a stock on margin,” CNNMoney reported.

Financial Select Sector SPDR

Bank of America

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