How bad has it been for the financial sector and exchange traded funds (ETFs) in the last year? All you have to do is take a look at the shifting weightings of the sector in key indexes to find out.

The S&P 500 is a major benchmark which can help to measure the importance of a sector based upon the number of companies represented within the index. At the market’s all-time high on Oct. 9, 2007, financials were 20.1% of the index’s market value, the largest of any of the 10 major sectors.

More than a year later, financials now only represent 10.5% of the S&P 500, reports Tom Petruno for The LA Times. Last Tuesday, the sector’s share of the index briefly dipped to 9.6% – the first time its weighting was in single digits since 1992.

The smaller an industry’s representation in the index, the less significant it is in moving the index day to day, up or down. As financials have dried up, sectors that have grown within the index include health care at 15.5%, energy at 14.1%, and technology at 16.2% (now the largest weighting). Are financials worthy of the mere seventh place mark, only ahead of basic materials, telecom and utilities?

  • SPDR S&P 500 (SPY): down 7.3% year-to-date

S&P 500 ETF SPY

As banks are still suffering losses incurred by failing mortgages, credit cards and auto loans, and questionable corporate debt, can TARP funds actually be the answer? TARP funds have been used to stem the bleeding in failing and healthy banks alike, but the fact remains that no one knows how far housing prices will drop and how many loans will ultimately fail, remarks Jay Hancock for The Baltimore Sun.

At the end of the line, after the guarantees, aggregator banks, and commercial banks have all done their parts and the Treasury has put a floor under banks’ losses, it is the taxpayer who will suffer and pay the losses from the bonds to the banks. So, given that financial services are putting that on us right now, their seventh place within the S&P 500 is actually generous.

  • iShares Dow Jones U.S. Financial Services Index Fund (IYG): down 31.4% year-to-date

Financial ETFs

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.

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