“The year 2010 opened with a bang for financial stocks as they went from market laggards to market leaders in a hurry. The Select Sector SPDR Financial exchange-traded fund (ticker: XLF) gained nearly 5.7% last week compared to the Standard & Poor’s 500 gain of 2.7%. Not too shabby for a sector that has gone essentially nowhere for the past five months,” Michael Kahn Reports From Barrons.

“The question is whether this is a true change in the sector’s fortunes or merely a wiggle within a trading range. While finally having bullish potential after a long hiatus, the group has not yet made a technical breakout. Therefore, we have to continue to believe that these stocks are still in a trading range,” Kahn Reports.

“Without getting into fundamentals, such as valuations or the quality of earnings thanks to stimulus efforts, we can see clear shifts in sector behavior. The aforementioned financial ETF indeed shows a rather sharp change for the better in performance relative to the market (see chart below). Other sectors, specifically consumer discretionary and technology, show sharp changes for the worse. In other words, while the market continues to plod higher, money is rotating away from several groups and into financials,” Kahn Reports.

 

 

The question many will ask is why the banks are even in the position to make an upside breakout at all. Some cite the steep yield curve where short-term rates are low and long-term rates are significantly higher to provide a good environment for the business of banking. After all, if they can access capital at near-zero rates and either lend or invest it at a higher rate they can make money.  Mike Larson, analyst with Florida-based Weiss Research, concurred. He said that bank underperformance at the end of last year was due to expectations that the Fed would not hold short-term rates so low. But last week’s news, culminating in a weak but not devastating jobs report, gave bank investors confidence that short rates will remain low.

See The Full Story: HERE

Here is a closer look at The Select Sector SPDR Financial ETF (XLF):

The investment (XLF) includes companies from the following industries: banks, diversified financials, insurance and real estate. The fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index. This fund has adopted a policy that requires it to provide shareholders with at least 60 days notice prior to any significant material change in its policy or its underlying index. It is nondiversified.

Components and weightings as of 1/8/10.

	Name	Symbol	Index Weight
1	JPMorgan Chase & Co.	(JPM)	11.65%
2	Bank of America Corp.	(BAC)	11.04%
3	Wells Fargo & Co.	(WFC)	9.76%
4	Goldman Sachs Group Inc.	(GS)	5.93%
5	Citigroup Inc.	(C)	4.63%
6	American Express Co.	(AXP)	3.30%
7	U.S. Bancorp	(USB)	3.06%
8	MORGAN STANLEY	(MS)	2.90%
9	Bank of New York Mellon Corp.	(BK)	2.35%
10	MetLife Inc.	(MET)	2.07%
11	Travelers Cos. Inc.	(TRV)	1.76%
12	PNC Financial Services Group Inc.	(PNC)	1.74%
13	Prudential Financial Inc.	(PRU)	1.65%
14	CME Group Inc. Cl A	(CME)	1.54%
15	AFLAC Inc.	(AFL)	1.53%
16	State Street Corp.	(STT)	1.49%
17	Simon Property Group Inc.	(SPG)	1.45%
18	Capital One Financial Corp.	(COF)	1.26%
19	BB&T Corp.	(BBT)	1.24%
20	Charles Schwab Corp.	(SCHW)	1.21%
21	Allstate Corp.	(ALL)	1.11%
22	Chubb Corp.	(CB)	1.10%
23	Franklin Resources Inc.	(BEN)	1.07%
24	T. Rowe Price Group Inc.	(TROW)	0.92%
25	Loews Corp.	(L)	0.91%
26	Northern Trust Corp.	(NTRS)	0.84%
27	Progressive Corp.	(PGR)	0.79%
28	Marsh & McLennan Cos.	(MMC)	0.77%
29	SunTrust Banks Inc.	(STI)	0.76%
30	VORNADO REALTY TRUST	(VNO)	0.72%
31	PUBLIC STORAGE	(PSA)	0.71%
32	Ameriprise Financial Inc.	(AMP)	0.71%
33	AON Corp.	(AON)	0.69%
34	Hartford Financial Services Group Inc.	(HIG)	0.66%
35	INVESCO Ltd.	(IVZ)	0.65%
36	Boston Properties Inc.	(BXP)	0.62%
37	EQUITY RESIDENTIAL	(EQR)	0.61%
38	HCP Inc.	(HCP)	0.59%
39	FIFTH THIRD BANCORP	(FITB)	0.58%
40	Principal Financial Group Inc.	(PFG)	0.54%
41	Lincoln National Corp.	(LNC)	0.54%
42	Discover Financial Services	(DFS)	0.54%
43	IntercontinentalExchange Inc.	(ICE)	0.53%
44	Host Hotels & Resorts Inc.	(HST)	0.52%
45	REGIONS FINANCIAL CORP.	(RF)	0.49%
46	UNUM GROUP	(UNM)	0.45%
47	NYSE Euronext	(NYX)	0.45%
48	Hudson City Bancorp Inc.	(HCBK)	0.45%
49	Ventas Inc.	(VTR)	0.45%
50	Avalonbay Communities Inc.	(AVB)	0.43%
51	PROLOGIS	(PLD)	0.43%
52	Genworth Financial Inc. Cl A	(GNW)	0.42%
53	Plum Creek Timber Co. Inc. REIT	(PCL)	0.42%
54	XL Capital Ltd. Cl A	(XL)	0.41%
55	M&T Bank Corp.	(MTB)	0.40%
56	People’s United Financial Inc.	(PBCT)	0.39%
57	KEYCORP	(KEY)	0.38%
58	Kimco Realty Corp.	(KIM)	0.37%
59	SLM CORP.	(SLM)	0.37%
60	Health Care REIT Inc.	(HCN)	0.36%
61	Moody’s Corp.	(MCO)	0.35%
62	Legg Mason Inc.	(LM)	0.33%
63	Comerica Inc.	(CMA)	0.33%
64	Leucadia National Corp.	(LUK)	0.32%
65	Cincinnati Financial Corp.	(CINF)	0.29%
66	American International Group Inc.	(AIG)	0.26%
67	CB Richard Ellis Group Inc. Cl A	(CBG)	0.25%
68	Torchmark Corp.	(TMK)	0.25%
69	Assurant Inc.	(AIZ)	0.24%
70	Marshall & Ilsley Corp.	(MI)	0.24%
71	First Horizon National Corp.	(FHN)	0.21%
72	Huntington Bancshares Inc.	(HBAN)	0.20%
73	NASDAQ OMX Group Inc.	(NDAQ)	0.20%
74	E*TRADE Financial Corp.	(ETFC)	0.18%
75	Janus Capital Group Inc.	(JNS)	0.17%
76	Federated Investors Inc.	(FII)	0.16%
77	ZIONS BANCORP	(ZION)	0.15%
78	Apartment Investment & Management Co.	(AIV)	0.13%

 

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