S&P 500 Struggles From Financials & Energy Impact

By Jim Farrish | August 22, 2008 | 8:58 AM | 1 Comment

The S&P 500 index continues to struggle in part due to the financial sector. Throw in the energy decline of late and 28.5% of the index is being impacted. Up to the recent decline in energy and rise in financials, the weighting in energy was greater in the S&P than financials for the first time since 1989. In fact, financials had fallen from the largest sector to the third in July.

Doing some research on index and scanning through the individual sectors shows some data worthy of watching going forward. Going back to energy and financials as I stated, the last time the two were near each other in weighting was 1989. Coincidentally, that was the last financial crisis with the S&L bailout. Financials went on to bottom in 1991 at the same time energy peaked in that move. Looking at a chart of the weighting of each sector relative to the S&P 500 index shows a similar change to 1989. Energy is becoming a larger weighting to the S&P 500 and financials continue to decline.

If history repeats itself, the bottom for financials could still be a year to two away and the top for energy could be a ways off as well. With all the recent data from the financial markets and supply issues facing energy, this could be exactly the case. Looking at charts of (NYSE: IYE) vs (NYSE: IYF) over the last four years, we see a similar divergence between the two sectors. While many analyst are calling for bottom to the fall in financials, we could still see some downside looking forward. As we all know, the past is no indication of the future, but looking at these type of events can certainly give some perspective to what is taking place.

Mean Reversion That's mean reversion at work! Great chart too Submitted by Guy Lerner on Mon, 2008/08/25 - 3:09pm » reply |