Well I sure picked the wrong day to say that I expect financial stocks to move higher over the next month...as I'm writing this, the market is down by over 500 points or 4.5%. Why? EUROPE. Once again, there is concern that many of the European banks, (in France, Spain, Portugal) are going to go belly up - a la Lehman Brothers/Bear Sterns back in 2008. Do I think that will happen? No. Europe saw what happened to the U.S. economy and stock market when our financial system almost collapsed, and I'm hard pressed to believe that they would allow such a catastrophic event to happen. So why are the markets getting crushed because of what's happening with the European banks? FEAR...investors are affraid that they will get burnt like they did back in 2008 and it's almost like someone pulled the fire alarm in a crowded gymnasium - everybody starts running from the door to get out at the same time (investors start selling their stock just to get out and this selling causes more selling which leads to fear).
Fear is trumping fundamentals and corporate growth prospects which are both improving. Although tepid, our economy is stable and slowly improving, our financial system is in great shape compared to 2008 and banks are back making money. So all that being said, do I still think financial stocks will move 10-20% higher over the coming month? Yes. And strange as it is, with bank/brokerage stocks being down so much today, they look even more attractive if you focus on the buy on the cheap methodology. These stocks, such as Citigroup and Wells Fargo or Etrade should not be down as much as they are today...buy low sell high. I am by no means "going all in" (like in poker), but I am starting to pick up small amounts of stock as these valuable companies go "on sale". Remember this is why having cash in an investment account is so important...buy low sell high - right now things are pretty low.
