NEW YORK (ETF Expert) -- Some analysts expected the United States Federal Reserve to finally begin reducing the size of its money-printing program. Others, myself included, believed the Fed would not take action in 2013.
Either way, I would be surprised if tapering one month -- December, January, March -- is not followed by an increase in electronic money creation in another -- June, July or August. That's because Chairwoman Janet Yellen will likely feel compelled to push rates back down and asset prices back up at the first sign of an economic soft patch.
My expectations notwithstanding, another debate seems to be raging about which equity type(s) benefits the most from higher interest rates. According to Bernstein Research, energy is the only sector to demonstrate statistically positive results to increases in rates over the previous 40 years.
Meanwhile, financial stocks have fared the weakest of all sectors. The findings directly contradict the notion that banks benefit the most from rising rates since it should allow them to charge more for their services. Alas, financial companies may be able to increase profit margins, but research suggests that the performance of corporate stock shares may actually be harmed by higher interest rates.
During the last six months in which the tapering conversation has been in play, the technical evidence also appears somewhat bleak for diversified financial services. SPDR Select Sector Financial (XLF), with holdings including JPMorgan Chase (JPM), Wells Fargo (WFC) and Bank of America (BAC), has demonstrated relative weakness against the S&P 500 SPDR Trust (SPY) throughout the second half of 2013. In fact, it is worth noting that the XLF:SPY price ratio has declined rapidly enough for its 50-day moving average to cross below its 200-day trendline.