Investors fear that the subprime fallout, which has taken its toll upon stocks and exchange traded funds (ETFs), could result in an all out credit crunch. The financial sector has taken the brunt of the blow, as shares of Financial Sector SPDR (XLF) are down about 10% year-to-date, making it one of the worst performing sectors in the S&P thus far, reports Michael Krause for Krause says he has reasons to believe that investors have overreacted to the overall negative news because XLF has three overlooked positive qualities.

  • Earnings estimates are rising and not falling.
    There is strength in mergers and acquisitions activity that bears a lot of fruit for Wall Street. Insurance firms have seen estimates rise, and overall estimates for XLF are up.
  • Actual results are strong.
    Expectations likely will be surpassed as sector earnings look as if they will be up 9.3% compared to last year at this time.
  • XLF is cheap.
    If research is true and sector fundamentals are improving, then XLF could be a bargain.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.