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Financial Take the Mantel

David Becker
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The financial sector of the US stock market has lagged behind the rest of the S&P 500 index during most of the 2013 rally. Financial have historically been a leader, but have not been able to capture the mantle until recently. With rates remaining very accommodative, and the shape of the yield curve continuing to steepen, financial are likely to be the leaders moving through the balance of 2013.

The currency PE ratio of the S&P 500 index is printing near the 19 level, which is historically average for the large cap index. Financial benchmarks such at JP Morgan Chase (NYSE:JPM) , Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) currently have price to earnings ratios of 10, 12, and 12 respective. There is a lot of room for margin expansion in the financial sector which will likely coincides with upward price movements.

Banks are still facing regulator issues and capital requirements and continue to be their own enemy when it comes to trading blunders. Just yesterday Goldman Sachs announced it will take a right down in the 4th quarter after it experienced large trading losses in its currency department. JP Morgan this week settled a number of civil issues with the Justice Department and New York state. The fine to the company of 13 billion dollars was a record. This week, Union Bank of Switzerland (NYSE:UBS) and Barclays (NYSE:BCS) received immunity for their assistance with prosecutions related to the Libor scandal. Although it might seem strange that the largest banks that had the most involvement in the scandal received immunity, this scenario is in stride with EU laws. Both stocks performed well helping the financial sector gain ground.

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