Thursday, July 19, 2007
OK, poor follow up for the name of a post after yesterday's Techity Wreckity. Domestic financial stocks have generally been struggling for the last few months or so relative to the broader market.
My position for clients has been the same for several years which has been very little domestic exposure and a lot of foreign exposure netting out to less than the S&P 500's 22%.
Many attribute the weakness to the subprime dealio but I have to wonder if a part of it too was that the slope of the yield curve, which when inverted or flat is a headwind for the sector, finally caught up to it.
Perhaps the slope of the curve contributed to the subprime which then contributed to financial stocks lagging? Maybe, maybe not.
Interestingly the part of the group that has done better than the broad sector has been the more volatile (in my opinion anyway) public exchange stocks and brokerage stocks (ex-Bear Stearns?). I think the reason for this is because as the market has been going higher investors/traders have been willing to take on the type of risk that goes with these two sub-sectors.
This divergence could last a while longer as the trend, much to my surprise, seems to still be intact.
For now I continue to prefer foreign over domestic for financials. Banks and the like are a great way to own foreign countries. Just about every foreign country has one or two big public banks.