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Banks Typically Lead A Bull Market

One of the scarier charts out there right now is the performance of the bank index compared to the S&P 500.

In the investment world, the bank index is a leading indicator of where the broader market is headed. As you can see from the chart above, the bank index lead the market up into mid 2003 dropped back through early 2006, then it led the large cap stock surge of 2006. Since late 2006, it has fallen and has broken the support line on the chart (chart courtesy of Helene Meisler of TheStreet.com).

This, in my mind is a good indicator that we are in for a correction of some variety. Maybe a small one, maybe a bigger one. A rising rate environment is not a friendly place for banks to operate, and as you’ve read here on this blog and in my newsletter, I see higher rates ahead mirroring the rising inflation that is coming our way.

We are feeling good about our trailing stops and we’ve booked some cash to use to reinvest in our current investment themes at the appropriate time.

Be careful with any money that you are managing for yourself or your family. The bank index says that its headed down in value.

Mark