History Shows Bearish Future for Bank Stocks, XLF

Financials are the worst performing sector of the year so far, and perhaps no group sparks as much debate from both the bull and bear camps as the bank stocks.

While both The New York Times and the Wall Street Journal featured the split over bank stocks Monday, Birinyi Associates says that if history is an accurate guide, the bears have already won.

Birinyi analyst Jeff Rubin studied the performance of bank stocks relative to their behavior in the past nine bull markets, going back to 1962. In the first two months of the new bull market, banks scored an average 44 percent of their entire bull market run.

Bank stocks, measured by the KBW Bank Index, were up 123 percent in the first two months after the start of the current bull run on March 9, 2009. The S&P 500, in that same two months, was up 37 percent.


% of Entire Gain
6/26/62 2/9/66 47
10/7/66 11/29/68 31
5/26/70 1/11/73 23
10/3/74 11/28/80 135
8/12/82 8/25/87 22
12/4/87 7/16/90 45
10/11/90 7/17/98 2
8/31/98 3/24/00 61
10/9/02 10/9/07 29
3/9/09 - -
Average 44
Source: Birinyi Associates

Since that two month period, banks have trailed, rising just 15 percent while the S&P tagged on another 43 percent. So Rubin used the two-month time frame to measure relative performance in other bull markets.

"They've been underperforming from mid-2009. More importantly is that this is typical—seven of the last nine bull markets. Truth is in the numbers," said Rubin.

There was one notable exception, and it's probably the one investors remember best. In the period from 1990 to 1998, banks outperformed the S&P by 420 percent. Excluding that period, the average relative underperformance of banks to the S&P after the first two months of a bull market was 36.8 percent.

The XLF Financial Select Sector SPDR fund is down nearly 6 percent year-to-date, and it's down about 11 percent since February, when the S&P started going sideways. The KBW banking index is now off 10 percent since Jan. 1. Citigroup and Bank of America are both down more than 17 percent since the start of 2011, while JPMorgan is off 4 percent.

Banks were also among the worst performers at midday Monday.

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