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Bob Carey
Chief Market Strategist
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  Time For A Status Update On Financial Stocks
Posted Under: Sectors
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View from the Observation Deck

  1. While the returns featured in the chart indicate a strong showing for financial stocks since the end of the last bear market on 3/9/09, it does not paint the whole picture.
  2. That is because the S&P 500 Financials Index plunged 82% from its all-time high on 2/20/07 through the end of the bear market on 3/9/09, compared to a decline of 51.5% for the S&P 500.
  3. The S&P 500 did not actually reach its all-time high until 10/9/07.
  4. As of 10/8/12, the value of the S&P 500 Financials Index stood 58% below its close on 2/20/07. The S&P 500, however, was just 7% off its closing value on 10/9/07. 
  5. Since the subprime mortgage meltdown led to the financial crisis in 2008, it is understandable, in our opinion, that financial stocks would take longer to recover than the broader market.
  6. And that is why financial stocks, in our opinion, have the potential to provide investors with significant upside over the next 1-5 years.
  7. Why so long? Banks will be implementing nearly 400 new regulations from the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act moving forward.     
  8. The concern is the regulations could make banks less profitable. What event(s) could potentially change this scenario? A victory by Mitt Romney on November 6. The Republicans are in favor of less regulations.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The following are unmanaged indices: S&P 500 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance; S&P 500 Financials Index, S&P 500 Banks Index, S&P 500 Investment Banking & Brokerage Index and S&P 500 Insurance Index are also capitalization-weighted indices which include stocks from the S&P 500 Index in each respective sector; and FTSE  NAREIT All Equity REITs Index is a free float adjusted market capitalization weighted index which is representative of U.S. REITs.
Posted on Tuesday, October 9, 2012 @ 5:15 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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