Analysis: Financials near to regaining S&P 500's top spot

Sun Aug 11, 2013 7:04am EDT
 
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By Alison Griswold

NEW YORK (Reuters) - It's hard to overstate the damage that the banking crisis caused financial stocks.

At their peak on June 1, 2007, the stocks in the Standard & Poor's 500 financial sector index had a collective net worth of more than $2.9 trillion, roughly 30 percent greater than that of the next largest group, tech stocks.

Then the housing bubble burst, and their market value plummeted by $2.4 trillion, a drop of 83 percent, compared with the broader S&P 500's 58 percent swoon. When financial stocks hit bottom in March 2009, the whole group was worth just $510 billion, roughly the equivalent of the combined pre-crisis market value of JPMorgan Chase & Co. and Citigroup.

Such a fall makes their comeback all the more remarkable: The financial sector stands within a whisker of recapturing the mantle as the $17 trillion U.S. stock market's heaviest hitter.

At present, the financial index accounts for 16.6 percent of the entire S&P 500 - about 1 percentage point less than the technology sector, data from S&P Dow Jones Indices showed. At the start of the year, the gap between the two stood at about 3.5 points.

"The psychology toward banking has been so incredibly negative, and the big financial gurus were so negative, that they completely missed the fact that the banking industry was showing this gradual steady improvement," said Dick Bove, bank analyst at Rafferty Capital Markets in Tampa, Florida. "In the past couple weeks, they're all saying, 'Banking is back.'"

Financials have added nearly 25 percent this year, lagging only healthcare and consumer discretionary shares. Should they surpass tech, they would top the S&P's 10 industry sectors for the first time since May 2008. At the market low on March 9, 2009, they had a market weight of just 8.9 percent, the smallest since 1991, when the S&L crisis was in full rage.

For the most part, big banks are driving the growth. JPMorgan Chase, Wells Fargo, Citigroup and Bank of America have provided the sector's biggest boost. Each has gained at least 24 percent so far this year.   Continued...

 
Traders work on the floor of the New York Stock Exchange August 9, 2013. REUTERS/Shannon Stapleton