I view the next move by the Fed is most likely a rate cut later this year, which will benefit the stocks in this rate-sensitive group. The banks and diversified financials , such as insurers and real estate investment trusts, have been having a tough year. Through April 17, the financials sector index has fallen behind, underperforming the S&P 500 index. Although the sector has appreciated, it’s the laggard of the 10 sector indices, rising only 0.7% while the “500” has gained 3.8%. In 2006, the financials sector index increased 16.2%, compared with a13.6% rise for the “500.” The subprime lending mess has put pressure on many stocks in the group recently. After energy, the financials sectorhas the lowest price-to-earnings ratio of all 10 sectors of the economy, at 12.7 times 2007 earnings. The powerful energy sector’s P/E can’t be beat at11.5 as of April 20. Price is one good reason why S&P says it’s time to consider banks again and the representative Sector SPDR-Financials (XLF). This sector makes up about 22% of the “500.”
Sentiment: Buy
XLF my top holding #4
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