Are Investors becoming desensitized to bad news?
Is there going to be a year end rally for the financial sector? In most years, financial stocks have tended to perform better in the last quarter of the calendar year. According to the research in Thackray’s 2009 Investor’s Guide, Financial Stocks start their year-end rally about the middle of December in the US and continue the rally until mid April. With the exception of the last four years, financial stocks have outperformed the S&P 500 during this period. In Canada, the year end for financial stocks is October 31st so the rally should come earlier than the US if it does come at all.
The financial sector has a market capitalization of a little more than $1 trillion dollars. This represents a little more than 25% of the TSX composite market capitalization of just shy of $4 trillion dollars. The average P/E ratio is 10.22 and the dividend yield is 4.93 for the financial sector while the TSX market is 10.68 and 4.13%, respectively. The financial sector includes the major commercial banks, diversified financial services and insurance companies. For example, Royal Bank is a commercial bank, AGF Management is a diversified financial service provider and Sun Life is an insurance company.
In the last week the financial services sector increased by 18.34%. On Friday November 28, 2008 the financial sector closed at $141.01. The high over the last year was $217.49 reached on November 30, 2007 while the low was $110.41 reached in November this year. Since August 27th 2008, the financial sector has outperformed both the TSX and the S&P 500. The financial sector dropped -20% while the TSX was down -31.5% and the S&P 500 was down -30%. From a technical standpoint there are no clues as to the direction other than a bearish signal represented by a downward channel since August.
So where does that leave us? We just had a rally of six days in a row in the market and the financial sector was one of the leading point getters. However, I might remind you that not only are the technical’s bearish but we are in the middle of earnings reports for banks and more write downs are expected. The only question is, will investor’s refocus on the economy or are investors becoming desensitized enough to bad news in order to support a year-end rally?
The financial sector has a market capitalization of a little more than $1 trillion dollars. This represents a little more than 25% of the TSX composite market capitalization of just shy of $4 trillion dollars. The average P/E ratio is 10.22 and the dividend yield is 4.93 for the financial sector while the TSX market is 10.68 and 4.13%, respectively. The financial sector includes the major commercial banks, diversified financial services and insurance companies. For example, Royal Bank is a commercial bank, AGF Management is a diversified financial service provider and Sun Life is an insurance company.
In the last week the financial services sector increased by 18.34%. On Friday November 28, 2008 the financial sector closed at $141.01. The high over the last year was $217.49 reached on November 30, 2007 while the low was $110.41 reached in November this year. Since August 27th 2008, the financial sector has outperformed both the TSX and the S&P 500. The financial sector dropped -20% while the TSX was down -31.5% and the S&P 500 was down -30%. From a technical standpoint there are no clues as to the direction other than a bearish signal represented by a downward channel since August.
So where does that leave us? We just had a rally of six days in a row in the market and the financial sector was one of the leading point getters. However, I might remind you that not only are the technical’s bearish but we are in the middle of earnings reports for banks and more write downs are expected. The only question is, will investor’s refocus on the economy or are investors becoming desensitized enough to bad news in order to support a year-end rally?
Labels: Rallies and Reversals
posted by David Allard at
9:42 AM
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