How the Financial Sector Has Held Back the Dow in 2016

Banking, finance, and taxes

Published: March 27, 2016 10:15 am

Last Updated: January 13, 2020 11:30 am

Although it has only been a few months into 2016, this market cycle has been fairly convoluted. We have seen oil prices fall into the $20 range and then recover slightly, another Federal Reserve rate hike delay, and even relative currency fluctuations in Europe and China. But after much waiting, the Dow Jones Industrial Average (DJIA) has made it back to positive territory.

So far in 2016, it has taken about three months for the DJIA to go positive. The push to positive was in fact made by the Dogs of the Dow, but this push was stalled for some time by many of the financial companies in the index. The financial sector as a group is down just over 7% in the quarter to date.

When the Fed in December raised its policy interest rate to a new range of 0.25% to 0.50% from a range of 0.00% to 0.25%, the move was viewed as positive for banks. However it wasn’t until the most recent Federal Open Market Committee (FOMC) meeting announcement that investors began to believe the financial sector would not get pummeled by rate hikes.

The Fed saw stability returning to global markets and a solid increase in energy prices since February as signals that the economy is doing better and that just two rather than four rate hikes are on tap for this year.