What's Going On With Financial Select Sector SPDR Fund (XLF)?

Shares of the Financial Select Sector SPDR Fund XLF are trading lower by 10.6% to $44.36 over the past week and are extremely volatile during Monday’s session.

President Donald Trump's announcement of sweeping reciprocal tariffs against key trading partners last week has ignited investor concerns about a global economic slowdown—an environment that poses significant risks to the U.S. financial sector.

What Is XLF?

The Financial Select Sector SPDR Fund is an exchange-traded fund designed to track the performance of the Financial Select Sector Index, which includes major U.S. financial institutions.

Top holdings in the fund include JPMorgan Chase & Co JPM, Bank of America Corp BAC, Wells Fargo & Co WFC, Goldman Sachs Group Inc GS and Citigroup Inc C.

These companies are deeply tied to macroeconomic conditions and global trade flows, making XLF especially vulnerable to geopolitical developments like a trade war.

Why Are Tariffs Hurting Financials—and XLF?

Economic Growth at Risk: Financial institutions thrive in stable, expanding economies. Tariffs have the opposite effect—disrupting supply chains, increasing costs for businesses and chilling global trade. Slower growth directly affects loan demand, reduces business investment and increases the likelihood of defaults. These dynamics all undercut bank profitability, especially for institutions that dominate the XLF ETF.
Weaker Loan Activity: Banks like JPMorgan and Wells Fargo generate significant income from lending. But as trade tensions escalate, businesses are more likely to delay expansion or capital investment, which means lower demand for commercial loans. At the same time, consumers hit by higher prices on imported goods may tighten spending, reducing appetite for credit cards and mortgages.
Market Volatility and Investment Activity: Tariffs have injected fresh uncertainty into financial markets. That's bad news for investment banks and asset managers—another key slice of XLF's holdings. A sustained pullback in markets tends to reduce trading volumes, shrink deal pipelines, and lower asset management fees. Firms like Goldman Sachs could see a hit to earnings if market instability continues.
Rising Risk of Credit Deterioration: If tariffs trigger a sharper economic downturn, the financial sector could face rising delinquencies and deteriorating credit quality. Banks may be forced to set aside more capital for potential loan losses, further squeezing profits.