Exchange-traded funds that track and financial and banking sectors rose on Wednesday, after the Federal Reserve raised interest rates but indicated a less-aggressive schedule for further hikes in 2018. The Financial Select Sector SPDR ETF rose 0.7% while the SPDR S&P Bank ETF was up 0.5%. The SPDR S&P Regional Banking ETF was gained 0.4%. The Fed stuck to its prior forecast of three rate hikes in 2018, though it projected another three in 2019, rather than the two it previous indicated. In contrast to the broader equity market, bank stocks tend to benefit from environments with higher interest rates, as rates boost their net interest margins, or the difference between the interest they earn on the loans they make and the interest they pay out. Low rates can depress their net interest margins, which can lead to lower earnings. Some investors had speculated that there could be four rate hikes in 2018, which could have provided a tailwind to the sector. The Dow Jones Industrial Average rose 0.8% while the S&P 500 was up 0.6% and the Nasdaq Composite Index rose 0.5%. Among individual stocks, Goldman Sachs rose 0.9% while JPMorgan Chase & Co. was up 1.3%.
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