Financials Back On The Radar

NEWS: The markets were holding up fairly well and only suffered modest losses until the financials fell off the cliff. The Dow closed the session off 139 points or 1.2% and is now sitting just above the 50-day moving average. The S&P 500 lost 15 points or 1.2% and the NASDAQ settled with a small loss of 9 points or 0.4%. The NASDAQ 100, which is the largest 100 stocks in the NASDAQ ex-financials was flat on the day. So you can clearly see the affect the financials had on the overall market.

THE BOTTOMLINE: The credit crisis reared its ugly head once again today as JPMorgan Chase (JPM) reported more write-downs and Goldman Sachs (GS) was downgraded from Meredith Whitney. The sector fell 5% on the news and was the main driver behind the selling that took place from the opening bell. Not even another drop in the price of oil could salvage the market today as the combination of negative news for the financials and an overbought situation was too much to overcome. If the financials continue to lose more ground it will be difficult for the rally to continue because they are so important to the movement of the indices. I would expect more short-term weakness in the financials, but longer term I believe the bottom has been made and buying on weakness into select companies can be a strategy.

GREENBACK BREAKOUT

NEWS: The US Dollar Index closed at a fresh 5-month high today and has confirmed the breakout that occurred earlier this month. As the greenback as been rallying, the Euro has fallen from a high of $1.60 to $1.49 today. This is a major drop that has sent the Euro below the 200-day moving average for the first time in years.

THE BOTTOMLINE: For the last six years the theme as been to buy investments that benefit from a drop in the US Dollar. I believe that has now changed and we should see the greenback continue to move higher over the next year or longer. In the past it was stocks that were connected to commodities, based in a country outside the US, generated their sales outside the US, and every currency but the US Dollar. This is one of the MegaTrends that may be coming to an end and now it is time for investors to realize the landscape has changed and new opportunities are available in sector that may have been overlooked in the past. I will not get into great specifics here today, but I will touch on areas over the coming weeks as I prepare our clients portfolios for the shift from anti-dollar to pro-dollar investments.

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