Financials Underperform

A little fun with charts this morning. Readers of the Banks thread know that I have been banging my fist on the table regarding underperformance by the financial sector for all of 2010 now. According to Standard and Poors, Financials comprise 15.71% of the S&P 500 Index which stands second only to Tech which makes up 18.71%. 3rd place is Health Care at 11.5%. So with this in mind, both Financials and Tech should at least be in line with the index or better as far as performance. A look at the charts. Note the SPX performance during the same time period below.

Regional banks, underperforming


Bank Index, underperforming


Financial index, underperforming badly


Why do I continue to beat a dead horse on financials? Well, partially because I am a lone bear right now defending my stance, but the financials need to perform for any rally to be the real deal. And, the fact that the financials make up a large part of the S&P 500 makes their participation all the more important.

Bulls will say, so what the market is going up. Truth is, that as a 'bull' market (or bear market rally) progresses, less sectors play a part in it's move up as investors shuffle their money into the bright spot sectors until there is nothing left worth investing in. Think 2008 with China.

Oh, one more for the bulls since I did mention Technology. A bit of short covering in the past few weeks?

 

[Guest]

So, would the recommendation be to buy financials as QE2 is supposed to lead to more borrowing and lending and the banks will begin to join in on the party? Or is the recent uptrend unsustainable enthusiasm for ultimately destined to fail policies? My view is that enthusiasm for QE2 will wane and the dollar beat down will only fuel stocks more in the short term so I guess I agree with Bullitt, if you have been fortunate enough to make some money the last 6 weeks you probably should take your profits and get defensive in the near term.

 

[Birchtree]

I continue to like my bank stocks and will hold them until the skies clear - they will pay their dividends and will turn around going forward - at least now they remain cheap for dividend reinvestments.

 

[Bullitt]

Unregistered- This whole rally since September has been based on the dream of QE2. Every analyst pumping for QE2 has already positioned themselves for it. Who's left to buy? Will the retail investor be there for the Tepper types to pass their shares off to on the news? Probably, but the point is, the big buyers have already done their part.

 

[Scout333]

Tepper has somewhat answered this question. His fund has lightened up on financials. Commented that financials are no better or worse than any other equity. If the economy/market goes up so will the financials if the economy/market goes down so will they. He, like most of the hedge fund guys, is counting on QE as their backup plan.:worried: