Chris Kotowski, Senior Research Analyst of Large Cap Banks and Brokers at Oppenheimer & Co., did not think this rally was a "head fake". He believed that stocks bottomed earlier in the year "because the Fed hung out the green flag, saying the water is safe with the stress test."
Kotowski's gauge - measuring the inflows of problem assets into the banking sector - has grown "steadily every single quarter." This quarter also saw record levels, but also marked the first time since the onset of the crisis, that "the net inflow of problem assets was flat." A peak in the rate of inflow problems, according to Kotowski is definitely a positive.
The technical perspective also confirms the positive outlook for banks. From his analysis of technical trends, Carter Worth, Chief Market Technician of Oppenheimer Asset Management said "financials are still underowned and it's alright to be overweight the group." Backing up his call with some market stats, Worth said that financials were 22% of the S&P at the start of 2007, hit a low of 9% in March and now it's back up to 15%. Worth thinks financials will "stabilize around 18% and that he expects the outperformance to continue.
Catch us Thursdays as we continue our "Exchange" series from Wall Street's top trading floors.
Liza Tan contributed to this article.
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