We have been hearing it for a couple of months now—it is time for financial stocks to shine. Yet, financial shares are having a pretty poor year. The reason appears to be the flattened yield curve. However, a new academic study finds that it is not primarily the yield curve, but rather short-term rates alone that dictate most of financial share performance. The spread between government and corporate bonds is also a factor. Looking at historical performance of financials as compared to rates, it seems like financial shares are about 9% below their fair value.
FINSUM: As our readers will know, we are not fond of historically-driven strategies, but we do give this one credit in that it is finally a new way of looking at the situation in bank shares.