Bear And Stearns Bullish On Banks

Bear Stearns Upgrades Financials to Market Weight form Underweight
Bear Stearns’ upgrade of the financials is  based on several factors including:

1) stock prices now reflect likely write-downs and weaker trend-line earnings

2) increased clarity surrounding write-downs

3) expectations beginning to reflect realistic outcomes

4) the recapitalization process is a positive sign.

That being said, Bear Stearns does not recommend an overweight position because they believe the credit environment continues to contain significant uncertainties.

While I respect the opinions of the professionals at Bear and Stearns, I am just not ready to jump into financials with both feet quite yet.  In particular, I am not sure that point #2 above highlighting “increased clarity” and the last paragraph highlighting “significant uncertainties” are not contradictory.

The following chart of the S&P 500 sector returns shows that investors have turned ultra-defensive.  This defensive positioning can be identified by the superior performance of the traditionally defensive utilities and materials sectors (Orange and Blue lines).   Where are you positioned right now?

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