A No-Confidence Vote Among Financial Stocks

by: Brett Steenbarger November 18, 2008 | about stocks: XLF    
Brett Steenbarger

Brett Steenbarger

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To date, government efforts have focused on stabilizing the financial sector, including banks and insurance companies. From the charts below, it seems safe to say that the stocks of these financial firms have not responded favorably to these rescue efforts. The financial stocks within the S&P 500 universe (XLF) has lost 2/3 of its value and are hovering at bear market lows (top chart). As the helpful chart from Decision Point illustrates (bottom chart), the advance-decline line specific to financial issues within XLF is steadily moving to bear market lows. We're also seeing unusually negative money flows from the XLF stocks.

It is difficult to imagine sustaining a bull move in stocks overall without seeing some signs of investor confidence in this key sector. At this point, XLF may be serving in part as a sentiment gauge regarding investor confidence in the government's rescue efforts. Thus far, the verdict is thumbs down.

 



 

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This article has 6 comments:

  •  
    Nov 18 12:02 PM
    With the government taking stake in the banks they become more like policy banks, which on the whole is not good for prudent lending. In way we are back to square one of easy credit and money which led to us the current problem.

    Couple with toxic assets which are devaluing with the worsening economy leaves very little to be positive about the financial companies.
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  •  
    Nov 18 12:18 PM
    No confidence in management. Not enough house cleaning and transparency.
    Reply | Link to Comment
  •  
    Nov 18 01:49 PM
    The overall market can't go anywhere without the financials. We have a long way to go to see any real life in this market. Right now, we don't even know how sick we are.
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  •  
    Nov 18 02:39 PM
    When you consider that, absent the gub'mint bailout, many of the component banks in XLF would have a book value of ZERO, the XLF price is holding up quite well.

    Maybe when net bank equity gets back above zero the sector will start to see some recovery. Current non-borrowed reserves are $-320 Billiion.

    research.stlouisfed.or...
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  •  
    Nov 19 01:55 AM
    The government (Smarty: gub'mint has gotten old) will keep pounding money into the financial sector until their stock prices go up. It's kind of like shocking a corpse, but everyone believes the financial zombie has to revive and lead the recovery parade.
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  •  
    Nov 24 12:44 PM
    It is difficult to forecast a change in investing confidence without a major upswing in consumer confidence. Consumer spending is directly related to job security and insurance protection, so this should be one of the first step restoring stability in the market.
    Reply | Link to Comment
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