No doubt about it: 2008 was a bad year for financial services stocks. The S&P 500 financial services index registered a 60% downturn through December 15. So why does Sam Stovall, chief investment officer of Standard & Poor’s, recommend a 13% weighting toward financials (within a domestic equity allocation) for 2009?
The answer is simple. That 13% is the weighting of financial services stocks within the S&P 500.
“S&P recommends marketweighting the S&P 500 Financials sector; although S&P analysts still have a negative fundamental outlook, we believe the government’s Troubled Asset Relief Program (TARP), which has involved capital infusions into financial institutions, has lifted some of the uncertainty surrounding the sector,” says Stovall. An additional positive, in our view, includes the insuring of certain money market assets. As a result of the federal government’s efforts to stem increasing investor pessimism, we believe the worst for this sector may be over.”