The Financial Sector has turned Negative

Of the ten global economic sectors, the financial sector is the largest and arguably the most important sector in the world economy. Since the stock market low in early March the financial sector is up nearly 160%, while the overall market is up 61%. But, since mid-October the financial sector is down 6.7%, the rest of the market is up only 1.6%. This is the best overall performance of the stock market since 1933, and we all know what ensued over the next several years during the Great Depression.

Within the financial sector the banking industry is in trouble once again and if a major selloff occurs banks will lead the way down. A healthy financial sector is key to the overall growth of the economy, and unfortunately, the only reason the banks did not completely collapse last is year is because of government intervention and massive cash infusions. Moreover, the same government that gave all these institutions capital to wart off complete disaster are now proposing legislature to regulate or in some cases take the institutions over altogether. With interest rates at historic lows, unemployment rising (though at a moderated pace), and the fact that bank lending standards have become much more stringent diminishes the hopes for a flourishing financial sectors over the next 18 months.

Therefore, I conclude in saying once again, "be cautious and be very wary of what potentially awaits the market in the coming new year."

By David A. Mascio