Invesco S&P SmallCap Financials ETF [PSCF] Stock Forecast

Lipper Financial Services ETFs recorded their largest weekly outflow of the year over the past fund flows week (-$1.4 billion). On top of the bank failures, market participants are worried about the largest U.S. banks gaining an increasing market share by allowing them to take over the smaller regional institutions.

When it comes to disruption, the financial sector saw transformative change during the height of the pandemic. While valuations have tempered, especially last year, the sector should continue to see growth as emerging technologies continue.

Thanks to the historical trend of "January Effect," small-cap securities have proven their outperformance in January.

Banks could hold off on raising interest payments on deposits if the Federal Reserve hikes rates, potentially further bolstering their bread-and-butter businesses and supporting the outlook on financial sector-related exchange traded funds. The Fed has signaled that it will hike rates in March, the first of potentially multiple hikes in 2022.

Trading revenues among Wall Street banks surged during the height of the trading spree amidst the heightened volatility during the pandemic recovery. However, financial sector-related exchange traded funds could begin to ease into a new normal as conditions settle down.

As rates rise, investors should consider banks and financial sector-related exchange traded funds. The S&P 500 financials sector is already outperforming in the new year, rising 5.4% last week over the first five trading days of January and marking the sector's best start to a calendar year since 2010, the Wall Street Journal reports.

Conditions for small-cap don't look too bright. Conditions for financials appear to be improving.

Mergers and acquisitions activity among banks is brisk this year, and with loan growth still sluggish, the consolidation trend is expected to continue. That could benefit the Invesco S&P SmallCap Financials Portfolio (NASDAQ: PSCF).

Some small-cap sectors are likely to log triple-digit earnings growth this reporting season.

We have highlighted a number of small-cap ETFs that hit all-time highs in the last trading session and are among the popular choices.