Survival of the fittest is probably the animal kingdom's most dominant theme. Survival of the fittest is also a concept well established on Wall Street; just ask Bear Stearns, Washington Mutual, or CIT Group.
Every major business cycle has winners and losers, leaders and laggards. The players change, the cycles change or reverse, but the concept remains the same.
Towards the middle of the 20th century, industrial and manufacturing type companies led the stock market to new highs. Technology stepped up to the plate as the U. S. started to lose their status as a manufacturing powerhouse.
After the dot.com bubble, engineers took over - financial engineers. The metamorphosis of GE aptly illustrates this change. From manufacturing tangible items like refrigerators and turbines, GE transitioned into high finance. GE's slogan changed from "bringing good things to life" to "imagination at work."
Companies like GE, Merrill Lynch, and Bear Stearns propelled the stock market to its lofty 2007 highs. As it turned out, many of the profits raked in from GE's financial units in the early 2000s were all but imagined, or short-lived. As the real estate market soured, GE's financial units, along with the entire financial sector, started to feel the pinch. In fact, banks and financials led the post-2007 decline.
On March 2nd, the ETF Profit Strategy Newsletter alerted subscribers that the biggest rally in years - led by financials - is imminent. After emerging first from the March 2009 bottom, financials and banks have once again started to slow down. In fact, the Dow Jones and S&P 500 are among a select few indexes to record new highs in November. High beta sectors such as banks, financials, real estate, small caps, and even the value line index have failed to do so.