Financial Sector ETFs feel the burn of Moody’s credit downgrades

Financial Sector ETFs have all felt the burn today as the Financial Select Sector SPDR Fund ETF (NYSEARCA:XLF), the Direxion Daily Financials Bull 3X Shares ETF (NYSEARCA:FAS), the Vanguard Financials ETF (NYSEARCA:VFH), and the iShares Dow Jones US Financials ETF (NYSEARCA:IYF), have declined nearly 1% today in reaction to Moody’s credit downgrades of nine European nations and lackluster Retail sales numbers.

Among the European nations on the chopping block included the typical problem children Italy, Spain, Portugal, France, Austria, and Slovenia, while the UK, which still preserves its AAA rating, has been placed on negative watch.  Financial ETFs were likely hit in reaction to the credit downgrades, as continued issues of debt and austerity crises in the Eurozone leave US banks and world markets exposed to any contagion that might occur.  All in all, the Western World simply has too much debt and not enough economic growth and revenue to sustain record levels of debt.  Since Central Banks and private banks fund this whole parade, it is not surprising that the Financials ETFs were hit hard today after negative credit news.

The Financials Sector and Financial ETFs also felt the burn because of the worse-than-expected retail sales reports released earlier this morning. American consumer activity as a whole is nothing to write home about, which is a partial reflection of the financial sector in terms of economic growth and the health of the Financial industry.

Financial Sector ETF Summary:

1. Financial Select Sector SPDR Fund ETF (NYSEARCA:XLF): -0.13 (-0.88%)
2. Direxion Daily Financials Bull 3X Shares ETF (NYSEARCA:FAS): -2.17 (-2.40%)
3. Vanguard Financials ETF (NYSEARCA:VFH): -0.33 (-1.07%)
4. iShares Dow Jones US Financials ETF (NYSEARCA:IYF): -0.47 (-0.86%)
5. Direxion Daily Financial Bear 3X Shares ETF (NYSEARCA:FAZ): +0.56 (2.15%)

Bottom Line:  The Financial Sector does not like debt or downgrades, and right now the Western World has a lot of both, so it is no surprise that Financial Sector ETFs like NYSEARCA:XLF and NYSEARCA:FAS felt the burn of Moody’s credit downgrades.  Among the countries downgraded were the usual suspects Spain, Portugal, Italy, and France; the UK was also placed on negative watch, so that cannot fair well for the ailing country and continent.  At the end of the day, there is simply too much debt, and I would not be surprised if continued downgrades, depressed financial sector ETFs, and austerity measures continue for quite some time until the crisis resolves itself.

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Disclaimer: Wall Street Sector Selector trades a wide variety of ETFs and positions can change at any time.

About John Nyaradi (http://www.wallstreetsectorselector.com) John Nyaradi is Publisher of Wall Street Sector Selector: Your Home For ETF Investing! John writes a weekly guest column, John Nyaradi’s ETF Edge for MarketWatch.com and his investment articles have appeared in many online publications including Trading Markets, Money Show, Yahoo Finance, Investors Insight, Fidelity, ETF Daily News, iStock Analyst , among many others. His book, Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, is published by John Wiley and Sons and included among the Years Top Investment Books in the 2011 Stock Trader’s Almanac.