Tuesday, September 23, 2014

Unappreciated Weakness in the Financial Sector

As bond prices (AGG) have failed to make new highs along with stocks in recent months (top chart), we see sectors of the market dependent upon interest rates showing lagging relative performance from the bond peak forward.  Those include housing (XHB); real estate (IYR); and regional banks (KRE). 

I notice some people have made a bullish case for this market based upon recent strength in the financial ETF, XLF.  That, of course, is dominated by large cap stocks and those have been the recent outperformers, as we've seen in the recent post. The broad list of financial shares has not fared as well, per the recent performance in KRE.  Indeed, the small cap financials ETF (PSCF) failed to confirm recent new highs and have gone nowhere since late last year.  Even within stronger sectors, we're seeing evidence of thinning participation in the market strength.

Further Reading:  Sector Money Flow