As I've said recently, I think the markets have bottomed for the year, but I am not of the opinion that stocks will move up in a straight line for the remainder of the year. I continue to think that they (stocks) will trade up and down in a tight trading range, which will serve to frustrate market participants as the direction of stocks will be difficult to forecast.
In looking at specific market sectors that I think will perform the best over the coming weeks and month, I believe that the overly hated financial stocks could rally 10-20% to the upside. These include stocks such as JP Morgan, Wells Fargo, Citigroup, Goldman Sachs, Etrade, just to name a few; I also think that the regional banks like Hudson City and Regions Financial could perform well. I come to this conclusion for several reasons:
- financial stocks have been the most hated part of the market over the past 2 months
- the worst of the mortgage mess seems to be behind us
- financial companies are well capitalized and have built up their cash reserves
- several of the largest companies (JP Morgan, Citigroup) have been buying back their own stock and have started to pay dividends to their shareholders
- their is a decent amount of insider buying in the sector (this is where employees of the company, usually CEO's and board members actually take their own money and buy stock in the company)
- the overall negatives that have plagued banks over the past 2 years (the poor housing market, mortgage mess, the government having to step in and lend banks money, etc) are well-known and seem discounted
- stock prices are down big over the year, and most analysts expect to see consolidation (mergers and acquisitions)
So all that being said, I'm watching the financials over the next month as I expect the sector to perform well (it just so happens that as I've written this, the financial stocks are up approximately 3-4% as the market is trading up on the day).
