Financial ETFs Jump After Yellen Hints That Near-term Rate Hike Is Possible

Exchange-traded funds that track the financial sector jumped on Tuesday, after Federal Reserve Chairwoman Janet Yellen offered an upbeat outlook for the U.S. economy and suggested that interest rates could be raised at "upcoming meetings." Some took the comments as implying that the Federal Open Market Committee could raise key interest rates as early as the Fed's next policy meeting in March. Higher rates are seen as a tailwind for the sector, in large part because of bank net interest margin, or the difference between the interest they earn on the loans they make and the interest they pay out. Low rates can depress net interest margins, which can lead to lower earnings. The Financial Select Sector SPDR ETF rose 0.8% and was by far the biggest gainer among S&P 500 sectors. The SPDR S&P Bank ETF added 1.2% while the SPDR S&P Regional Banking ETF advanced 1.3%.

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