Financial Sector

DEFINITION of 'Financial Sector'

A category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate.

BREAKING DOWN 'Financial Sector'

Financial services perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop. Furthermore, when the business cycle is in an upswing, the financial sector benefits from additional investments. Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.

RELATED TERMS
  1. Sector

    1. An area of the economy in which businesses share the same ...
  2. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  3. Industrial Goods Sector

    A category of stocks that relate to producing goods used in construction ...
  4. Utilities Sector

    A category of stocks for utilities such as gas and power. The ...
  5. Basic Materials Sector

    A category of stocks that accounts for companies involved with ...
  6. Sector Rotation

    The action of a mutual fund or portfolio manager shifting investment ...
Related Articles
  1. Stock Analysis

    The Top 5 Financial Penny Stocks for 2016 (CPSS, ASRV)

    Learn about some of the most promising penny stocks in the financial services sector that investors can consider adding to their portfolio for 2016.
  2. Economics

    4 Economic Challenges South Korea Faces in 2016

    Learn about the economic challenges South Korea faces in 2016. Discover the impacts of currency fluctuations, the Chinese economy and Fed rate cuts.
  3. Mutual Funds & ETFs

    The Top 5 ETFs for 2016 (VTI, SCHG)

    Discover the top five ETFs to include in your portfolio for 2016, including large-cap growth and dividend funds, foreign exposure and small-cap growth funds.
  4. Mutual Funds & ETFs

    FAS: Direxion Daily Financial Bull 3X ETF

    Obtain a thorough review and analysis of the Direxion Daily Financial Bull 3X fund, a leveraged ETF that tracks the performance of the financial sector.
  5. Mutual Funds & ETFs

    IJH: iShares Core S&P Mid-Cap ETF

    Learn more about the iShares Core S&P Mid-Cap ETF, and understand how savvy investors might incorporate this ETF into their portfolio.
  6. Mutual Funds & ETFs

    XLF: Select Sector Financial SPDR ETF

    Find out more about the Financial Select Sector SPDR Fund, the characteristics of the exchange traded fund, and the suitability of fund.
  7. Mutual Funds & ETFs

    VXF: Vanguard Extended Market ETF

    Learn how the Vanguard Extended Market ETF provides investors with exposure to the larger stock universe, except for companies in the S&P 500.
  8. Mutual Funds & ETFs

    The Top 5 Financials Sector ETFs for 2016

    Discover detailed analyses of the top five financials sector exchange-traded funds, which may be poised to rise if the Federal Reserve raises interest rates.
  9. Mutual Funds & ETFs

    KBWB: PowerShares KBW Bank ETF

    Consider an examination and analysis of the PowerShares KBW Bank Portfolio ETF, considered one of the primary financial sector ETFs.
  10. Mutual Funds & ETFs

    EDIV: SPDR S&P Emerging Markets Dividend ETF

    Learn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
RELATED FAQS
  1. What is the difference between a peril and a hazard?

    The two related terms "peril" and "hazard" are often used in reference to the insurance industry. Essentially, a peril is ... Read Full Answer >>
  2. What other sectors are most similar to insurance?

    The sectors that are most similar to insurance are other subsectors of the broad financial sector, such as banking, asset ... Read Full Answer >>
  3. What emerging markets are best suited for investing in the real estate sector?

    Some of the primary emerging market economies for investors to consider real estate investments are China, India and Brazil, ... Read Full Answer >>
  4. Is the banking sector subject to any seasonal trends?

    The banking industry, including retail and investment banks, is subject to seasonal trends. Seasonality is most commonly ... Read Full Answer >>
  5. What debt to equity ratio is common for a bank?

    The average debt-to-equity ratio for retail and commercial U.S. banks, as of January 2015, is approximately 2.2. For investment ... Read Full Answer >>
  6. What developed countries have the highest concentration in the banking sector?

    The developed countries with the highest concentration in the banking sector, as of 2015, are the United States, the United ... Read Full Answer >>
  7. What kinds of acts pertaining to interests in collective investment schemes are excluded ...

    The two main kinds of acts excluded from regulation as "financial instruments business," which pertain to interests in collective ... Read Full Answer >>
  8. Why is moral hazard so prevalent in the financial services industry?

    Moral hazard tends to be prevalent in the financial services industry due to the nature of the industry, temptation and greed, ... Read Full Answer >>
  9. How do prepaid debit cards work?

    Prepaid debit cards work almost like a combination of a credit card and a checking account. Prepaid debit cards are issued ... Read Full Answer >>
  10. Is the banking sector appropriate for a growth investor?

    Bank stocks are appropriate for serious consideration by growth investors. Overall, the financial sector is one of the highest ... Read Full Answer >>
  11. What are common mutual funds an investor should consider for investing in banks?

    Among the most popular mutual funds with investors and analysts for those interested in investing in the banking industry ... Read Full Answer >>
  12. What are examples of popular companies in the financial services sector? (BRK.A, ...

    The financial services sector includes banks, insurance firms, credit and payment processing companies, and real estate companies. ... Read Full Answer >>
  13. How does the landscape of the financial services sector in the U.S. compare to Canada?

    In recent decades, banking reforms and exposure to new business practices has served to increase the similarities between ... Read Full Answer >>
  14. What are the main factors that drive share prices in the financial services sector?

    The financial services sector comprises businesses such as large banks, credit services companies, asset management companies, ... Read Full Answer >>
  15. What are the biggest trends affecting the profitability of the financial services ...

    The financial services sector is huge – more than $7 trillion in market cap in the United States alone. Most market trends ... Read Full Answer >>
  16. Is the financial services sector appropriate for a growth investor?

    Financial services are a great option for growth investors, historically speaking. From the end of World War II to 2013, ... Read Full Answer >>
  17. What is the average price-to-earnings ratio in the financial services sector?

    The price to earnings ratio is one of the most common metrics used by investors to analyze whether investment in a company ... Read Full Answer >>
  18. What size of annual dividend yield is typical of companies in the financial services ...

    For income investors, calculating a company's stock dividend yield is an important aspect of analyzing the worth of an investment. ... Read Full Answer >>
  19. What is the average debt/equity ratio of companies in the financial services sector?

    Investors and lenders assess a company's financial stability by determining its debt to equity (D/E) ratio, also interpreted ... Read Full Answer >>
  20. What are the main reasons an investor should consider an allocation to the banking ...

    Financial sector performance is very closely tied to the performance of other industries yet it balances investment by providing ... Read Full Answer >>
  21. What are the main benchmarks that track the performance of the financial services ...

    The number of possible benchmarks that investors or analysts can choose from is extensive, especially for a sector as large ... Read Full Answer >>
  22. What growth rate does the financial services sector demonstrate on average?

    Growth in the financial services sector can be broadly divided into two periods: growth before 1980 and growth since 198 ... Read Full Answer >>
  23. What is a typical price-to-book ratio in the financial services sector?

    The financial services sector is divided into three main categories: banks, insurance companies and investment firms. Within ... Read Full Answer >>
  24. What is the average return on equity for a company in the financial services sector?

    Also known as return on net worth, a company's return on equity (ROE) is a common metric used by investors to analyze profitability. ... Read Full Answer >>
  25. What economic indicators are important for investing in the financial services sector?

    The financial services sector is integral to the overall level of economic activity in the United States and globally. For ... Read Full Answer >>
  26. Which developed markets have the greatest exposure to financial services?

    The developed countries with the greatest exposure to the financial services sector are the United States and the United ... Read Full Answer >>
  27. Are there leveraged ETFs that track the financial services sector?

    An exchange-traded fund (ETF) is a security that follows an index (or a set group of commodities or assets) but trades the ... Read Full Answer >>
  28. What countries represent the largest portion of the global financial services sector?

    China and the United States remain the most notable players on the financial sector scene. The U.S. has come to specialize ... Read Full Answer >>
  29. What distinguishes the financial services sector from the banks?

    Banking is a subset of the financial services sector, although not all bank services are strictly defined as financial services. ... Read Full Answer >>
  30. What techniques are most useful for hedging exposure to the financial services sector?

    Investors can hedge exposure to the financial services sector by putting some of their money in utility and blue-chip stocks ... Read Full Answer >>
  31. Which are the most popular mutual funds that target the financial services sector?

    Among the top-rated and most popular mutual funds that invest in the financial services sector are the Royce Financial Services ... Read Full Answer >>
  32. Why should an investor consider the financial services sector?

    Any serious investor should consider the financial services sector because it offers one of the largest markets that is full ... Read Full Answer >>
  33. What emerging markets are best suited for investing in the financial services sector?

    Emerging markets that provide the best opportunities for investments in the financial sector include the BRIC countries – ... Read Full Answer >>
  34. Why would a value investor be drawn to the financial services sector?

    A value investor is drawn to investing in the financial services sector for two principal reasons. First, financial service ... Read Full Answer >>
  35. What metrics can be used to evaluate companies in the financial services sector?

    Two of the best metrics that can be used to evaluate companies in the financial services sector are the price-to-book (P/B) ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center