JPM Earnings: A Teachable Moment for Advisors, Clients

JPM Earnings: A Teachable Moment for Advisors, Clients

Financials may be the sector most in need of demystification for retail investors.

Reviewed by: Staff
Edited by: Ron Day

What's a “financial stock?” 

The answer used to be easy for financial advisors to understand and explain: these are the shares of a public company that's part of the financial sector, one of 11 that make up the S&P 500. 

A generation ago, it was primarily banks and big brokerage firms.

However, as the digital economy has evolved, so has the financial sector. And exchange-traded funds haven't simply been along for the ride, they've allowed advisors to dissect the sector in ways that in decades past would have forced them to resort to taking single-stock risk. That’s no longer the case. 

J.P. Morgan’s stock price was off nearly 6% on Friday afternoon, after the giant banking company and Dow Industrials component released earnings. Since JPM is considered the leader in the financial sector, announces earnings before most other financial stocks do, and is a 10% weighting in the largest financial ETF, the $37 billion Financial Select Sector SPDR Fund ETF (XLF), this should put advisors on alert for what might be coming next.

That makes it timely to get better acquainted with the sub-sectors within financials.

Financial Sector ETFs Without Banks 

As is often the case when getting familiar with ETFs, the bigger issue is not lack of choice, but rather an overwhelming number of ways to “slice and dice” the sector, with multiple providers offering bank-focused ETFs.

As for the other industry-focused funds, the $740 million SPDR S&P Insurance ETF (KIE) focuses on companies in that area of financial services, and is equal weighted, further reducing the impact of one JPM-sized holding.

For those advisors who not only like our industry, but would like to consider an investment of client assets to the public companies in it, the $720 million iShares US Broker-Dealers & Securities Exchanges ETF (IAI) is a capitalization-weighted ETF with 38 companies in the businesses of trading, investing, investment banking, and overseeing the major stock and commodity exchanges. In other words, no traditional banking stocks. 

Of all the innovations in the financial services business, perhaps the most relatable to clients of advisors is the ease with which routine, everyday financial transactions now occur. 

We’re at the point where cash is at best optional. For advisors and clients who are curious about exploring how to participate in the potential future growth of the companies driving that continued evolution, even into cryptocurrencies as a means of payment, the often-overlooked Amplify Mobile Payment ETF (IPAY) invests in 40 such firms, from iconic payment facilitators like Visa to new kids on the block(chain) such as Coinbase. Oh, and it owns a 5% position in the company called Block, too. 

Today’s financial sector is far more than banks. And while JP Morgan has been a “too big to fail” type since the days of its eponymous founder, that doesn’t mean its stock price can’t be dented from time to time. The business of people’s money is now as diffuse as ever, and ETFs are on hand to help advisors customize their access to this sector.

Rob Isbitts' Wall Street career spans 5 decades and multiple roles, all dedicated to providing clarity to investors by busting classic myths and providing uncommon perspective. He did so as a fiduciary investment advisor, Chief Investment Officer and fund manager for 27 years before selling his practice in 2020. His efforts now focus exclusively on investment research, education and multimedia. He started ETFYourself and SungardenInvestment to provide straightforward commentary and access to his investment intellectual property for portfolio construction, stocks and ETFs. Originally from New Jersey, Rob and his wife Dana have 3 adult children and have lived in Weston, Florida for more than 25 years.