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J.P. Morgan's equities team has said financial stocks will help lead the market higher this year. Today, they held a call on the financial group and say they are still overweight, and they expect it to be one of the better performing sectors.
In a note, they concede their call was "challenged" early in the year when developments were worse than expected, but their basic call is still intact, because of improvements in the credit markets and a "trough like" price-to-book for the group.
I listened to part of a conference call with those analysts, and they had plenty of interesting things to say, particularly as major banks and other financials are expected to report profits starting next week.
(JPMorgan Chase and Wells Fargo report Wednesday; Merrill Lynch reports Thursday; Citigroup reports Friday)
They said among the encouraging signs for the group is the rally in credit default swaps, particularly for the financials. They also say with Fed funds at 2.25 percent and headline inflation of around 4 percent, there is a "negative real fed funds" rate.
In this type of environment, investors are penalized for holding cash and are encouraged to build leverage. Historically, it has proven to be favorable for financial stocks.
But Vivek Juneja, who follows large-cap banks, said he still sees trouble coming for that group.
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