The Financial Select Sector SPDR Fund ETF (NYSEARCA:XLF), which tracks the S&P 500 financials sector, recorded a rise of 3.3% in the first quarter.

The financials sector's gain came in comparison to the S&P 500's (SP500) fall of 4.4%.

The heavyweight sector managed to hold steady in a quarter that had its fair share of challenges, which included tariff concerns, market corrections, recession fears, and other headwinds that have shaped the financial landscape.

Industries Q1 Performance

Insurance saw the biggest rise in the sector and rose 11.9%; financial services followed next, rising 3.1%. Banks, however, declined by 1.3%.

U.S. stock fund flows into and out of the financial sector have swung from week to week. The financials-focused ETF had net flows of $2.21B in the first quarter till March 28.

Top 5 movers in Q1

Gainers

W. R. Berkley (WRB) +20.2%

Brown & Brown (BRO) +19.9%

Arthur J. Gallagher (AJG) +19.7%

Globe Life (GL) +18.8%

Progressive (PGR) +18.6%

Losers

PayPal (PYPL) -26%

KKR & Co (KKR) -24.2%

T. Rowe Price (TROW) -21.9%

Apollo Global Management (APO) -21.5%

Synchrony Financial (SYF) -20.8%

What analysts expect

XLF is showing relative strength, outperforming broader indices and topping in early March, SA analyst MacroGirl said, adding, “Despite risks, XLF's positive backdrop and relative strength indicate it could continue to perform well if the economy avoids recession.”

“The backdrop is still positive for XLF, and while there is a risk of an economic slowdown hurting earnings, this may not be as bad as many fear,” MacroGirl added.

Barclays also propelled its view on the financials (NYSEARCA:XLF) sector, setting its sights partially on what’s considered to be a looser regulatory environment in Washington.

Lower rates and “wobbly macro are risks,” but the group should “benefit as U.S. policy focus eventually shifts away from trade (and potentially to deregulation), with calmer capital markets providing a more constructive backdrop for M&A/deal activity,” Venu Krishna, Barclays’ head of U.S. equity research, said.

However, another Seeking Alpha analyst, Paul Franke, was not very positive on the sector and said, “The U.S. banking and financial sector is at risk of a significant downturn if a recession unfolds in early 2025, shocking overconfident investor sentiment.”

At the very least, I would avoid U.S. financials until the dust settles from Trump-inspired changes. This may take until the summer or autumn months before we fully understand all the intended and unintended consequences on consumer confidence/spending and economic growth, Franke added.

What Quantitative Measures Say

XLF received a Buy rating from SA quant system with a 4.37 score. This comes in large part due to a C grade in the category of risk. The stock, however, received high grades in other areas, with an A+ for momentum, an A- for dividends, A+ liquidity, and an A+ for expenses.