C.J. Lawrence Weekly – “Financials Add Fuel”

Financial stocks re-exerted leadership last week. After a strong 1Q17, the sector had faded into the middle of the performance pack among the broader S&P sectors. The S&P Financials Index is now up 13.1% for the year, ranking it 6 out of the 11 sectors. As we have noted in previous Weekly Comments, leadership from the financials is an essential ingredient to a meaningful equity market advance. The sector accounts for 14.7% of the weighting of the S&P 500 Index, eclipsed only by Technology, with a 23.2% weight.

The S&P 500 now has two of its top three weighted sectors leading in year-to-date performance. If Financials continue to outpace other sectors from here, and joins the top three, the trifecta could provide the broader index with added octane. Leadership from the heavyweights is important, but market participants should also note that the market’s advance has been, and continues to be, broad.

Nine of the eleven S&P sectors are in positive territory for the year, with six of them delivering double-digit gains. Only Telecom and Energy are in negative territory year-to-date, but Energy posted a positive 3Q17 return. Of the 105 S&P sub-indices, 75 are up for the year. Additionally, strength carries over into small capitalization stocks, which tend to do well when the economy gets in gear. The Russell 2000 is up 11.4% since mid-August. Leadership strength, combined with broad market participation and improving corporate fundamentals is typically a potent mixture for higher stock prices.

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