Financials Slip as Rising Yields and Narrow Breadth Weigh on XLF

The Financial Select Sector SPDR Fund (XLF), an exchange-traded fund that tracks the sector, closed -0.5% at $54.55 on Wednesday, September 23 as narrow breadth weighed on the group. Only 26.8% of the sector's stocks moved higher, with the cap-weighted sector finishing -0.4% while an equal-weighted view was -0.7%. Quality across XLF remains anchored, with 62.3% of the portfolio held in stocks graded A or B, but single-stock drag was clear: Blackstone Group Inc closed -3.8%, while exchange operators showed isolated strength as Intercontinental Exchange Inc ended at +2.2% and CME Group Inc finished at +1.3%. The drop unfolded as stronger business activity lifted Treasury yields and raised expectations for further central bank interest rate hikes.

A flattening yield curve weighed on financial stocks alongside broader equity headwinds from rising oil prices, leaving Financials among the laggards on a session when 1 of the 11 sectors rose. In addition, emerging personal artificial intelligence tools raised fresh questions about potential disruption across wealth management and retail brokerages.

In funding and capital activity, regional financial institutions continued adjusting balance sheets. M&T Bank refreshed its medium-term note program to issue senior and subordinated debt, while First Merchants priced a $100 million offering of subordinated notes.

EasyAlpha grades each company against its industry peers, and 62.3% of the fund sits in companies graded A or B. Historically, companies in those top two tiers have demonstrated stronger fundamentals and a lower risk of large drawdowns than companies graded D or E. Over longer horizons, XLF stands at -6.3% over the past month, +5.1% over the past 100 sessions, and +10.5% over the past six months.