danielosborne's  Instablog

With just one week left in the quarter, portfolio managers are already busily window dressing their portfolios but already, it looks like the S&P 500 financial sector index will come out a winner with a 21% gain for the first quarter followed by the S&P technology sector index with a 19.9% gain (Note: Financials account for approximately 15% of the S&P 500 while information technology stocks account for a 20.5% weighting).

Specifically, the Financial Select Sector SPDR ETF (XLF) which tracks the index is up 20.92% sine the start of the year but its still down 3.4% over the past year, down 56.6% over the past five years and down 42% over the past ten years. XLF contains 81 financial stocks with the following 15 stocks (and their year-to-date returns) accounting for 60% of its holdings:

1. Wells Fargo & Co. (WFC) +21.66%
2. JPMorgan Chase & Co. (JPM) +35.82%
3. Berkshire Hathaway'B' (BRK.B) +6.66%
4. Citigroup (C) +41.14
5. Bank of America Corp. (BAC) +77.16%
6. Goldman Sachs Group (GS) +39.53%
7. US Bancorp (USB) +17.19%
8. American Express (AXP) +21.37
9. Simon Property Group (SPG) +11.39%
10. MetLife (MET) +20.72%
11. PNC Financial Services Group (PNC) +9.87%
12. Capital One Financial (COF) 31.8%
13. Morgan Stanley (MS) +34.37%
14. Prudential Financial (PRU) +25.68%
15. Bank of New York Mellon Corp. (BK) +20.29%

So what is propping up shares of US financial services stocks? For starters, clients have been fleeing European banks ahead of the European debt crisis to the "safety" of US banks. Moreover, the FED has largely wrapped up its so-called stress tests and has concluded that most of the big banks in the US can survive a Depression-sized downturn - causing investors to also reexamine bank stock fundamentals and also come to the conclusion that bank stocks are not only sound but also make good investments. Hence and especially if the economy continues to improve, bank earnings will likely soar over the next few years with investors in banks stocks coming out as winners.

Nevertheless, investors need to remember that the financial sector and banking stocks in particular have been extremely volatile since the 2008 financial crisis and subsequent bailouts plus many large US banks still have exposure to the European debt crisis. In other words, be sure to add any banking or financial stocks that you own or are thinking of owning or trading to your Next Candle my portfolio page in order to keep an eye on our stock predictions for them as things could obviously change very quickly.