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Financials
| The Financial Sector contains companies involved in activities such as banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and custody, corporate lending, insurance, and financial investment, and real estate, including REITs. |
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Actual market weightings for each sector are based on the S&P 1500.
**The Market Analysis, Research and Education (MARE) group is a unit of Fidelity Management & Research LLC.
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Sector Commentary from Standard & Poor's
11/15/2009
S&P recommends marketweighting the S&P 500 Financials sector. Year to date through October 23, the S&P Financials Index, which represented 15.1% of the S&P 500 Index, advanced 20.3%, versus a 19.5% rise for the S&P 500 Index. In 2008, this sector index fell 56.9%, versus a 38.5% decline for the 500. There are 20 sub-industry indices in the sector, with Other Diversified Financial Services being the largest at 26.2% of the sector's market value.
Fundamentally, although S&P analysts see continued write-downs throughout 2009, they expect the trend to keep easing. This spring, the government announced the results of "stress tests" on the 19 largest domestic banks. Positively, capital raises were not as high as anticipated and banks were able to raise money from the private sector. As a result, we think banks are better prepared to withstand further write-downs. That said, tangible capital levels still remain low, by our analysis. Separately, the FASB recently revised some of its mark-to-market accounting rules. We think net income may improve due to lower impairment charges. In addition, robust mortgage banking income and elevated trading profits should help offset continued high provisions. However, if mortgage rates were to rise, this could curtail revenue and also hinder the housing recovery. This sector's marketweighted S&P STARS average of 3.7 (out of 5.0) is in line with the S&P 500 average of 3.7.
The S&P Financials Index has paused after reaching the 200 area, but we think further gains are in store as there is little chart resistance until the 250 level. Prices have broken above a bearish trendline that had been in place since October 2007, which we believe is another technical indication that the longer-term trend has turned bullish. In addition, the 17-week exponential average has crossed above the 43-week exponential, another confirmation that the longer-term trend is bullish, in our view. The 17-week had been below the 43-week since August 2007 and at the bear market low, the shorter-term average was more than 30% below the longer average. Relative strength versus the S&P 500 remains in an uptrend off the March lows, but has paused over the last couple of months. We are neutral with a bullish bias on Financials from a technical perspective.
As a result of the federal government's efforts to stem investor pessimism, we believe the worst for this sector may be over.