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Financials near to regaining S&P 500 top spot

It’s hard to overstate the damage that the banking crisis caused financial stocks.

Written by Reuters | New York | Published: August 12, 2013 12:48:15 am

It’s hard to overstate the damage that the banking crisis caused financial stocks.

At their peak on June 1,2007,the stocks in the Standard & Poor’s 500 financial sector index had a collective net worth of more than $2.9 trillion,roughly 30 per cent greater than that of the next largest group,tech stocks.

Then the housing bubble burst,and their market value plummeted by $2.4 trillion,a drop of 83 per cent,compared with the broader S&P 500’s 58 per cent swoon. When financial stocks hit bottom in March 2009,the whole group was worth just $510 billion,roughly the equivalent of the combined pre-crisis market value of JPMorgan Chase & Co. and Citigroup.

Such a fall makes their comeback all the more remarkable: The financial sector stands within a whisker of recapturing the mantle as the $17 trillion US stock market’s heaviest hitter.

At present,the financial index accounts for 16.6 per cent of the entire S&P 500 — about 1 percentage point less than the technology sector,data from S&P Dow Jones Indices showed. At the start of the year,the gap between the two stood at about 3.5 points.

“The psychology toward banking has been so incredibly negative,and the big financial gurus were so negative,that they completely missed the fact that the banking industry was showing this gradual steady improvement,” said Dick Bove,bank analyst at Rafferty Capital Markets in Tampa,Florida. “In the past couple weeks,they’re all saying,‘Banking is back.’”

Financials have added nearly 25 per cent this year,lagging only healthcare and consumer discretionary shares. Should they surpass tech,they would top the S&P’s 10 industry sectors for the first time since May 2008. At the market low on March 9,2009,they had a market weight of just 8.9 per cent,the smallest since 1991,when the S&L crisis was in full rage. For the most part,big banks are driving the growth. JPMorgan Chase,Wells Fargo,Citigroup and Bank of America have provided the sector’s biggest boost. Each has gained at least 24 per cent so far this year. Wells Fargo,the nation’s largest bank by market value,hit an all-time high in late July. This year,the stock has risen nearly 27 percent,on track for its best year since 2000.

Banking stocks may have even more room to run,according to an analysis by StarMine,a Thomson Reuters company.

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