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Financial Stocks Tanking! Ignore At Your Own Peril!

 July 22, 2011 11:39 AM
 


The KBW Bank Index includes 24 of the nation's largest banks — "Too Big to Fail" institutions such as Citigroup (C), Bank of America (BAC), and JPMorgan Chase (JPM) … "superregionals" like U.S. Bancorp (USB) and PNC Financial Services (PNC) … and custody and trust banks, including Bank of New York Mellon (BK) and State Street Corp (STT).

[Related -Boost Your Dividend Yield]

In other words, it covers a broad swath of the financial world. And it's been trading like death! From its high of 55.88 in February, it cratered to 45.11 on Tuesday — a decline of 19 percent in just five months.

Individual banks have done even worse.

Bank of America just plunged to its lowest level in 26 months after reporting a whopping $9.1 billion loss for the second quarter, for instance. Meanwhile, Goldman Sachs (GS) slumped to a level unseen since April 2009 after it reported a 38 percent collapse in profit and an $800 million shortfall in revenue versus expectations.

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

Why am I so focused on this market action? Why should you care? Let me explain …

Banks Are a Canary In
the Market Coal Mine!

I like Apple's (AAPL) products, and own an iPhone myself. I have a LinkedIn (LNKD) profile, and I run Google (GOOG) searches all the time. But does the strong performance of these specific stocks tell me a lot about the health of the broad economy? I don't believe so.

Banks, on the other hand, are at the heart of virtually every transaction on the planet.


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