The market’s largest financial stocks such as Citigroup (NYSE: C) and Bank of America (NYSE: BAC) have weighed heavily on the overall market as measured by the S&P 500. However, it’s a different story in smaller stocks where the financial sector is holding its own or even boosting performance, an analyst said Monday.
PowerShares S&P SmallCap Financials (NasdaqGM: PSCF) was down 2.4% so far in 2011 as of June 10, but rose 14.8% over the trailing year, according to Morningstar. The exchange traded fund tracks the financial stocks in the S&P SmallCap 600 Index.
Meanwhile, Financial Select Sector SPDR Fund (NYSEArca: XLF) was off 6.8% year to date and up 3.6% over the previous 12 months. The ETF is a subset of the S&P 500.
“The dramatic underperformance of the financial sector is a convenient touchstone to explain the ills of the broader market as the second quarter winds down this month, but this is really only true for the large caps,” says Nicholas Colas, chief market strategist at ConvergEx.
In the S&P 500, financial stocks have “absolutely and dramatically” underperformed since April 1, down 9.8% versus 4.4% for the entire index, Colas write in a note to subscribers Monday.
“Move down the capitalization spectrum, however, and the story changes,” he wrote. Among S&P SmallCap 600 stocks, financials are in line with the index’s return and are actually providing a slight lift in the S&P MidCap 400 Index.
Financial stocks and banks in particular have fallen on signs the economic recovery is running out of gas.