Monday, May 16, 2011

Bank Stocks vs. Defensive Stocks

Over the past year, the resilience of the global bull market in stocks has been impressive in the face of the lackluster performance of bank stocks in the US, Europe, and Japan. They may continue to underperform and could be bigger drags on stock markets around the world. In the US, banks are struggling with lots of toxic mortgage assets as home prices continue to fall. In Europe, the banks are exposed to the dodgy government bonds of the debt-challenged EU members. Japanese banks are under pressure to relax their terms on loans to borrowers who have been hard hit by the earthquake and nuclear disasters.

The mounting aversion to risk isn’t likely to trigger a bear market in stocks if investors continue to rotate into defensive sectors in the stock market. Health Care stocks have gone vertical over the past two weeks. So have Consumer Staples.

Utilities and Telecommunication Services have also been outperforming recently.

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