With between $3.7 trillion and $5 trillion of deleveraging left to go, the financial sector is still retrenching.
And while all other sectors have made a meaningful recovery, financials never really emerged from the bottom.
Here you see the nine SPDR Sector ETFs compared. Each plot shows the current price relative to the price in mid-October of 2007, just as the broad equities market peaked.
What you can see is that eight of the nine sectors are recovering. Some sectors are now above the October 2007 peak. These sectors show positive percentage gains, for example:
Consumer Staples (XLP): +24%
Consumer Discretionary (XLY): +15%
Health Care (XLV): +4%
Technology (XLK): +3%
The biggest and most obvious exception to the general recovery is the financial sector. XLF is still 59% below October 2007 prices.
We’re expecting this underperformance to continue as the financial sector sheds bad assets and right-sizes its operations for the new normal.
Actually, all sectors will suffer between now and the end of the year as the first wave of the selloff continues. Financials will soon have company… at the bottom.
If you haven’t done so already read the Survive & Prosper issue on “Debt is falling fast for the Financial Sector…”.